Ocado share price rallies amid Marks & Spencer talks reports

Shares in Ocado (LON:OCDO) have jumped in London this morning amid reports that the online grocer is in talks with Marks & Spencer Group (LON:MKS) over a potential food delivery service. The talks, first reported by the Mail on Sunday, have been conducted over the past few weeks.

As of 10:13 GMT, Ocado’s share price had added 3.89 percent to 983.20p, outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.06 percent lower at 6,805.04 points. Marks & Spencer’s share price has also advanced this Monday and is currently 1.78 percent better off at 295.15p.

Ocado and M&S in talks

The Mail on Sunday reported yesterday that Ocado  and M&S were in ‘secret’ talks over the launch of a food delivery service which will see the high street retailer buy key distribution centres, delivery vans and lorries from the online food grocer. The newspaper noted that talks between top executives at the two companies have been conducted over the past few weeks.

The Financial Times meanwhile quoted people with knowledge of the matter as saying that the talks amounted to early-stage discussions which might not lead to a deal. 

The talks come with Ocado’s contract with Waitrose set to expire next year. A City source told The Mail on Sunday that the deal on the table was “effectively buying the Waitrose part of the Ocado business and replacing it with M&S products”.

Analysts weigh in on report

Reuters quoted independent retail analyst Nick Bubb as commenting that Ocado was the obvious company for M&S to talk to. Ocado is chaired by Stuart Rose, a former CEO and chairman of M&S.

“M&S has been doing some online food trials in London [...] so either they have worked well enough, in terms of being able to make rapid delivery work, or Steve Rowe has been over-ruled by the ambitious new food managing director Stuart Machin, who has the ear of (Chairman) Archie Norman,” said Bubb. Reuters notes that when asked this month about M&S’ plans for a full online grocery shopping service, CEO Steve Rowe had said that at the moment, the company’s “basket size is not appropriate for that,” while noting that he was alive to the trend to move more online with food and was keeping “a very close eye on it”.

As of 10:48 GMT, Monday, 28 January, Ocado Group PLC share price is 305.45p.