A partnership between M&S and Ocado will not save its struggling food division, says GlobalData

In response to Ocado’s confirmation that it is in discussions with Marks and Spencer Group Plc regarding a joint venture in UK retail,

Thomas Brereton, Retail Analyst for GlobalData offers his view:

“M&S CEO Steve Rowe has been emphatically pursuing a ‘digital first’ M&S, in a bid to adjust the fledgling retailer to better cope with the rapid changes in shopper behaviour. But although a partnership between M&S Food and UK grocery’s tech wunderkind Ocado may seem like a step in the right direction, this attempt to rapidly gain momentum in the online market may be a misstep with short-term gains potentially outweighed by a long-term deterioration of brand awareness online.

“Although online penetration in food & grocery remains significantly below non-food – 9.1% vs 24.4% estimated in 2019 – the online food market still represents an important battlefield for the grocers, and will be worth £19.4bn by 2023.

“So with these facts at hand, combined with Ocado’s ‘open-arm’ approach to partnerships, it is an understandable jump for M&S to want to join forces with Ocado. In doing so, M&S might hope to simultaneously take a large slice of the online pie in one swoop, and putting a tick in the ‘digital first’ box, having a tech-savvy ally in its back pocket, as well as damming one of Waitrose’s revenue streams by removing it as Ocado’s predominant supplier.

“The exact nature of the deal is still unknown, with only a vague description of a ‘joint venture’, and so leaves a lot of scope for both Ocado and M&S to determine exactly what a partnership would look like. But M&S needs to be careful that it is creating an attractive proposition that can provide long-term gains, rather than simply jumping on the online bandwagon.

“It would be the wrong tactic for M&S to try to emulate Waitrose’s success through using Ocado as a stepping stone; the Ocado-Waitrose partnership began over a decade ago during the infancy of online food delivery, and M&S is now looking for a foothold in a much more evolved online market.”

 

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