Source: Ocado and M&S

M&S has agreed to pay £750m for the deal, which will also see it replacing existing Ocado supplier Waitrose from September 2020

Piggy-backing on Ocado’s bigger-basket orders is the only way M&S could have moved online, the upmarket grocer’s CEO Steve Rowe said this morning.

A deal announced between the two companies will see M&S take 50% of Ocado’s UK retail business under a new joint venture, and supply roughly 10% of the online supermarket’s range.

M&S has agreed to pay £750m for the deal, which will also see it replacing existing Ocado supplier Waitrose from September 2020.

Commenting on M&S customers’ typically smaller basket, and the fact a high number of them shop for the same day, Rowe said: “This is why this is the only way M&S could have moved online.

“We’re going to have a scalable business, profitably and sustainably, immediately when we start. And we think our products combined with Ocado’s own brand and their extensive range of other branded products completes that basket.

“Ocado already has a significantly larger basket online and this really is a great way for M&S to transform our food business.”

Ocado CEO Tim Steiner said he expected Ocado’s basket size of between £100 and £110 to remain unchanged.

“We already sell over 50,000 products online of which the branded own label is 4,500-5,000 products,” he said. “That’s why we get a full basket and we expect to continue getting a basket similar to the one we have today.”

Read more: Ocado and M&S: analysts’ reaction

M&S’s range of about 4,000 products will replace about the same number of Waitrose products sold by Ocado on the deal switchover date in September next year. Both CEOs dismissed any suggestion M&S could in effect be buying Waitrose customers who might switch loyalties as a result.

Rowe said: “In actual fact on a basket of 3,000 comparable products we’re some 4% cheaper than Waitrose, so we think customers are going to get a fantastic deal to get our products at better prices.”

Steiner said Ocado customers had “always been incredibly loyal”.

“We’ve built up hundreds of thousands of customers that shop with us every week,” he said, adding: “We believe the customers will be delighted with the changes we’re announcing today.”

It also emerged that the deal could see Ocado products sold in M&S stores.

“We’ll continue to work very closely with Ocado and look at what’s appropriate for our customers using the data we share,” said Rowe. “That may include more branded products and it certainly probably will include some Ocado products.”

Rowe described the deal as “our biggest and boldest step so far under our business transformation plan. It’s a game-changing step forward in shaping the future of M&S and in becoming a truly digital-first retailer with at least a third of the business online.”

Steiner said: “The combination of the qualities of Ocado and M&S will allow us to grow faster, add more jobs and create more value, as we lead the channel shift to e-commerce in the UK. We are very excited by the many opportunities ahead.”