LONDON (Reuters) – Shares in British retailer Marks & Spencer and online supermarket Ocado rose sharply on Monday on the back of a Sunday newspaper report that they are in talks on the launch of an M&S food delivery service.
The Mail on Sunday said talks between M&S and Ocado executives have been conducted over the past few weeks.
Shares in M&S rose as much as 2.6 percent, while shares in Ocado rose 6.7 percent.
Both companies declined to comment on the report.
Ocado has a supply and delivery contract with Waitrose, the John Lewis Partnership owned supermarket, that runs until 2020.
The newspaper report said the deal on the table was M&S effectively replacing the Waitrose part of the Ocado business.
Waitrose also declined to comment.
Online is Britain’s fastest growing grocery channel. It is expected to grow by 52 percent over the next five years to 17.3 billion pounds according to industry researcher IGD.
Ocado, which has helped to drive online shopping in Britain, has been trying to sell its proprietary technology to international supermarkets in the past few years, with new deals seen as key to the company’s valuation.
While M&S’s shares are down 5 percent year-on-year, Ocado’s shares have doubled thanks to four major overseas partnership deals, taking its market capitalisation to about 6.6 billion pounds.
M&S currently sells wine and flowers online as well as clothing but does not offer a full food delivery service.
But the retailer has been conducting trials since 2017 when the company conceded it could no longer ignore the growing online part of the industry.
Steve Rowe, M&S’ chief executive, was asked about the retailer’s plans for a full online grocery shopping service when the group gave an update on Christmas trading on Jan. 10, revealing another fall in underlying food sales.
“At the moment our basket size is not appropriate for that,” he told reporters.
“Forty one percent of our customers are shopping for today/tonight and that’s something that doesn’t really work in an online proposition. People want a different offer from us,” he said.
But Rowe also said that he was alive to the trend to move more online with food and was keeping “a very close eye on it.”
Independent retail analyst Nick Bubb said Ocado is 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.
Since Norman joined M&S in 2017 the company has accelerated the pace of change.
Norman told M&S shareholders last July: “Unless we change and unless we develop the company in the way we want to, in decades to come there will be no M&S.”
(Reporting by James Davey. Editing by Jane Merriman)