Ocado-M&S JV Financial Analysis

In February 2019, the British high street retailer Marks and Spenser (popularly known as M&S)

announced that it will set up a 50:50 joint venture with Ocado Group. The joint venture is established

by buying 50% equity in Ocado Retail (Ocado.com), which was a wholly owned subsidiary of Ocado

Group. M&S paid Ocado £750m for the joint-venture, that begin online trading in September 2020,

when Ocado’s deal to supply Waitrose products expired.

Steve Rowe, Marks & Spencer’s chief executive, said he had “always believed that M&S food could

and should be online” and combining M&S’s upmarket food range with Ocado’s technology and

delivery network was a “win-win” deal that would “drive long-term growth”.

However, M&S shares fell by 12% as investors and analysts raised concerns that the 134-year-old

high street retailer had overpaid for access to Ocado’s technology and delivery network. The plunge

in M&S’s share price – the biggest one-day fall since 2016 – wiped more than £550m off the retailer’s

market value. Ocado’s shares rose by 3%.

Rowe rejected suggestions that M&S had paid too much to get into the growing internet grocery

business. “We think we’re paying a fair price and I think Ocado do too,”.

Tim Steiner, the founder and chief executive of Ocado, said: “I think Steve and his team have taken

an incredibly smart risk today. It’s not like going to a casino and laying down a chip. You’ve got to

take calculated risks where your upside is enormous, your downside is minimal and your investment

to do it is sensible.”

Seminar Task:

Q.1 You are required to assess how far M&S decision to set up a joint venture with Ocado group is a

good business strategy.

Q.2 Financial statements of 2021 are included along with this case study. Examining the financial

figures provided therein, you are required to assess financial viability of the deal for M&S. In your
view how far profits earned during the financial year ending March 2021 justify the investment made

and why?

References:

The Guardian, 2019. M&S agrees £750m food delivery deal with Ocado.

https://www.theguardian.com/business/2019/feb/27/marks-and-spencer-agrees-750m-food-delivery-

deal-with-ocado

The BBC, 2021. M&S to close 30 more shops as Ocado deal pays off.

https://www.bbc.co.uk/news/business-57251682

Marks and Spencer Group Plc Full Year Results for 53 Weeks Ended 3 April 2021.

https://corporate.marksandspencer.com/documents/reports-results-and-publications/press-

releases/2020-21/full-year-results-2021-press-release.pdf