business news in context, analysis with attitude

Marks & Spencer, which has been a laggard in the UK’s home delivery business, this week announced a joint venture with pure play Ocado, “belatedly giving M&S a home-delivery service while netting $1 billion for its fast-growing technology providing partner,” according to a Reuters story.

“Under the deal,” the story says, “Ocado’s retail arm will become a joint venture with M&S, which will pay 750 million pounds ($1 billion) for its half share. M&S will defer 25 percent of the payment, which it will finance through a 600 million pound rights issue and a 40 percent dividend cut … The venture will trade as from September 2020 at the latest, following the termination of Ocado’s agreement with upmarket grocer Waitrose, which has supplied a large part of the products sold by Ocado since its inception in 2000.

“Waitrose, owned by the John Lewis Partnership, said it will focus on its own online business, which it is aiming to double in size within five years.”

Reuters goes on to point out that “although online supermarket pioneer Ocado has just a 1.3 percent share of Britain’s grocery market, its 7 billion pound-plus stock market valuation has been driven by its bespoke technology, which is giving retailers the infrastructure and software to compete with tech giants such as Amazon.”

M&S chief executive Steve Rowe says that “the joint venture with Ocado is a long term proposition ... is transformational and does add shareholder value.”
KC's View:
Ocado clearly is a player in a variety of companies’ efforts to facilitate a greater ability to compete with Amazon and, increasingly, Walmart/Jet.

I find myself wondering if it also becomes the connective tissue between a variety of companies. If Ocado does business with both Kroger and M&S, for example, does that set the stage for a strategic alliance of some sort between Kroger and M&S that allows each of them to be more competitive on a global basis?