M&S is looking to revamp its joint venture with Ocado as the high street stalwart grows frustrated with the firm’s poor performance, bringing the brands falling profits back to the forefront of investors’ minds.
M&S chairman, Archie Norman, told investors at the firm’s AGM last week that there was “work to do” regarding the performance of Ocado Retail.
Ocado is now expected to receive 40 per cent less in performance payments from M&S. It was supposed to hand Ocado £191m this year, its final payment for the joint venture deal, but the retailer is now said to have knocked £70m off.
A source familiar with the situation told City A.M that the “reset” referenced by Norman at the AGM would look to promote greater collaboration between M&S and Ocado and the phrase was used to solidify both brands commitment to the joint venture, as opposed to an official makeover.
However the brands, according to a report in The Times, will turn their focus to cost-cutting initiatives and improving the shopping experience for customers, drawing shoppers back to Ocado Retail after many turned to cheaper rivals such as Aldi and Lidl due to the cost of living crisis.
Ocado’s retail arm is only half of the company’s business model, as it also operates a grocery technology division which supplies warehouse robotics to bricks and mortar supermarkets.
“Ocado’s retail delivery business is around 20 years old and the business has never consistently made a profit, on a statutory basis, other than during the pandemic, and then it was unable to scale up fast enough,” Russ Mould, investment director at AJ Bell told City A.M.
“That may tell you something, as may Ocado’s willingness to sell the initial 50 per cent stake and preference for pitching itself as a technology company that licences outs its core skills, not an online grocer.”
“If Ocado was happy to get out, shareholders could have been forgiven for wondering why M&S wanted in, Ocado is now resetting its retail model and seeking scale and efficiencies from its newest customer fulfilment centres.”
He added: “But the jury is still out as to whether the operation can consistently make a profit or generate cash – analysts still don’t expect a pre-tax profit from Ocado overall (retail plus the UK and International Solutions activities) until the year to November 2026 at the earliest.”
The revamp comes as M&S begins to reap the rewards of its own transformation, posting a 9.6 per cent jump in revenues to £11.9bn at its most recent financial results.
Last year, M&S launched a plan to “reshape” the brand for growth, which included closing 67 of its shops and opening 100 food stores under a new modern format.
The brand has also invested in modern clothing and goods which appeal to a wider customer base.