Ocado has given more details of its plans to sell half of its Ocado Retail business to M&S as it asks for shareholder approval for the move at a general meeting to be held on May 20.
The new joint venture is expected to switch from delivering Waitrose products to delivering M&S goods by September 1 2020, the date that Ocado’s existing supply agreement with Ocado is currently scheduled to terminate. The new details appear in a circular that Ocado has now sent to shareholders ahead of the meeting.
If Ocado wins shareholder support, the joint venture is expected to complete on August 5, as M&S spends up to £750m on a 50% stake in Ocado Retail. That will make ocado.com the exclusive online route to market for both M&S and Ocado own-label groceries in the UK and Republic of Ireland. Together the two will offer a range of more than 50,000 products and will open an expected eight new customer fulfilment centres (CFCs) over the next 12 years. Currently Ocado’s online grocery business is available to 74% of UK shoppers through three CFCs – following a fire in February at a fourth CFC in Andover – and the addition of eight more represents an important expansion. As well as opening more CFCs, the company will also be able to deliver to customers using Ocado’s services, benefitting from the potential roll-out of its Zoom one-hour grocery delivery service.
As part of the agreement, Ocado agrees not to sell own-label goods from any grocery retailer that has more than a 1% share of the UK grocery market. In the event that Waitrose decides to terminate the supply agreement earlier than September 2020, says Ocado, M&S will be ready to step into its place ahead of time. However, that is not currently expected to happen. The joint venture will also not affect the work of the Ocado holding company (Ocado Holdings Ltd) with other retail clients, including Morrisons and the Fabled website, although its own retail business for pet owners, fetch.co.uk, will be included in the joint venture.
Ocado also set out the effects of the fire that broke out in its Andover customer fulfilment centre on February 5. Investigations by Hampshire Fire Brigade, the company and its insurers suggest the fire started with an electrical fault in a first generation battery charging unit – at type no longer in use – at the edge of a grid where goods are stored at ambient temperatures. That fault caused the plastic lid on top of a grocery carrying robot to catch fire. Ocado has added smoke detectors to the grid, in addition to those already used in the chilled storage grid, and has removed the plastic lid from its bots with, said Ocado, no impact on bot efficiency. “The company’s assessment of the reasons for the fire at CFC3 [Andover] gives the board confidence that, going forward, there are no significant implications for the risk profile of the group’s assets or the viability of the group’s model, and therefore for either Ocado retail or the rest of the group,” it said in the circular to shareholders.
The retailer is now operating a ‘spoke’ depot in Andover while it assesses the best way to rebuild the centre and to replace capacity in the short and medium term.
Image courtesy of Ocado