M&S races to beat 25-day deadline to seal Ocado deal

REVEALED: Full details of talks behind the delivery shake-up that has set middle class tongues wagging

MARKS & SPENCER chairman Archie Norman has 25 days to decide whether to push ahead with plans for a ‘ t ransformational’ £1 billion deal with Ocado to launch a food delivery service.

Norman has been holding talks with home delivery giant Ocado, revealed by The Mail on Sunday last weekend, as part of his efforts to revitalise the historic high street chain.

Ocado founder Tim Steiner has offered to sell his key distribution centre at Hatfield and Ocado’s fleet of refrigerated vans and lorries to M&S for a sum understood to be around £850 million.

The deal would involve Ocado dumping existing partner Waitrose – a severing of ties that would send shockwaves though the upmarket grocer’s heartland in the South of England.

But it could also reshape Marks & Spencer, enabling it to cater for modern shopping trends and put the company in a position to compete with supermarket rivals and defend itself against a long-mooted incursion by Amazon into the UK food retailing market.

Sources said Steiner and Norman have less than a month to hammer out a deal due to strict clauses in Ocado’s contract with Waitrose, which has been its partner for two decades.

The contract – which ends on September 1, 2020 – says that Ocado can trigger an 18- month break clause before March 1, 2019.

The deadline is crucial. A source with knowledge of the contract said: ‘On March 1 things will get far more complicated, if not impossible, for Ocado and M&S.

‘There is a window of opportunity here for both Ocado and Marks & Spencer to do a deal but the clock is ticking very fast.

‘The question is whether M&S – where the culture is still very much driven by meetings and emails where everyone has to be copied in, in triplicate, every time there is an incremental development – has the capacity to pull off a deal in that time.’ There are also understood to be complex unwinding clauses within Ocado’s contract with Waitrose, which also has a separate delivery service Waitrose.com which the supermarket runs separately.

M&S is one of the few large food retailers yet to launch such an operation.But the deal currently being discussed with Ocado would be fraught with complexities.

Steve Rowe, M&S chief executive, has previously admitted that his customers tend to buy fewer items each time they visit, compared with customers in supermarkets. That would make it hard for him to make deliveries profitable unless he could persuade shoppers to buy more each time or pay a fee for each doorstep drop-off, both of which could be difficult.

But retail sources said the most pressing concern was over whether M&S could tempt Waitrose shoppers using the Ocado service to switch to buying Marks products.

One senior industry source said: ‘ You take your customers for granted at your peril. If there is an assumption, as part of this deal, that Waitrose shoppers who use Ocado will simply switch to M&S on the same service, then that may be a serious miscalculation.

‘Ocado shoppers are first and foremost Waitrose shoppers, not Ocado shoppers. If this goes wrong, we could be looking at nothing short of a rebellion in the Home Counties.’

Sources said the next two weeks of talks between M&S and Ocado would be crucial. After that the chances of a deal would begin to evaporate and Steiner would soon be pressed i nto negotiating a renewal of his current contract with Waitrose.

Ocado is due to deliver full-year results this week. The company’s delivery service, for which Waitrose is the main supplier, is the only service wholly owned and run by Ocado.

In other partnerships it builds distribution centres and hands financial responsibility over to the retailer while Ocado helps run the operation under licence.

That has turned out to be far more lucrative for Steiner’s company – and with less direct financial risk. One such deal, signed in 2013, has been with Morrisons supermarket.

Steiner has since been looking worldwide for retailers who might want to buy the blueprint for Ocado’s technology- driven delivery service. He has used the firm’s automated distribution centre in Hertfordshire as a showcase.

Steiner struck gold last year, sealing a deal with US supermarket giant Kroger, boosting confidence in his strategy so much that Ocado’s shares have almost doubled to £9.91, valuing the firm at almost £7 billion.

M&S shareholders are understood to have contacted the company’s head office since news of the secret talks broke last Sunday, demanding more information. M&S and Ocado declined to comment.