Marks & Spencer and Ocado are discussing a joint venture that could expand the retailer’s home-delivery operations and further shake up the rattled UK grocery sector.
Shares of both companies surged after they confirmed talks on a deal, under which M&S could succeed Waitrose as Ocado’s grocery supplier.
The new alliance would boost Marks & Spencer’s food business, whose growth has slowed recently as the company moves to cut 100 stores across Britain.
The companies provided no details of the deal they’re discussing. However, the Evening Standard newspaper has reported that M&S will pay the online delivery operator as much as £900m (€1bn) for a 50% stake in the venture.
M&S has been slower to move into home delivery than other grocers in Britain, where chains have been struggling to gain scale and savings as the Brexit-riven pound has squeezed profit margins.
Online giant Amazon and discounters such as Lidl and Aldi are also challenging the big, established companies like Tesco and Sainsbury, which responded with a deal for Walmart’s Asda that has faced growing regulatory opposition.
Ocado, founded by former Goldman Sachs banker Tim Steiner, has grown into one of Britain’s biggest technology success stories. After a slow start for its licensing business, the company has struck a series of deals with US grocer Kroger, France’s Casino Guichard-Perrachon, and others.
The moves have given Ocado opportunities in areas where online shopping has seen slower growth to date than in the UK.
Ocado rose as much as 13% after the announcement, while M&S was up as much as 4.3%.
There’s no certainty the talks will result in a deal, the two companies said in separate statements. A supply agreement would help resuscitate M&S’s grocery sales as clothing sales have lagged.
Under chairman Archie Norman, M&S has been trying to cut £350m in costs.
Ocado is also looking to bounce back from a major setback earlier this month when a fire destroyed one of its automated warehouses. Revenue growth will suffer until capacity can be increased elsewhere, the company has said.
“This would give Ocado more time and resources to invest and develop the technology side of the business while retaining some interest on the retail side,” said Dusan Milosavljevic, an analyst at Berenberg in London.