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M&S targets doubling of food business after Ocado deal

M&S targets doubling of food business after Ocado deal
FILE PHOTO: A Marks and Spencer logo is seen on an advertisement outside of a store in London, Britain, May 23, 2018. REUTERS/Toby Melville -
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TOBY MELVILLE(Reuters)
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By James Davey and Navdeep Yadav

LONDON (Reuters) – British retailer Marks & Spencer <MKS.L> is targeting a doubling of its 6 billion pound food business, driven by its new joint venture with online supermarket Ocado <OCDO.L>, chairman Archie Norman said on Tuesday.

M&S bought a 50% share in Ocado’s UK retail business for an initial 562.5 million pounds in February, which will provide M&S with a home-delivery service from September 2020 at the latest.

“Our ambition is to double the size of our food business and Ocado sets us well on the way to doing that,” Norman told investors at M&S’s annual shareholders’ meeting, held at Wembley Stadium in London.

“We think this is transformational for our business,” he said. “I have to tell you not everybody outside yet realises what we’ve done.”

As an example Norman noted that the tie-up with Ocado will allow M&S to get a 7-8% improvement in terms from suppliers of branded goods, worth 7-10 million pounds a year to its bottom line.

M&S, one of the best known names on the British high street, set out on its latest turnaround plan shortly after retail veteran Norman became chairman in 2017 to work alongside Steve Rowe, who became CEO in 2016 and has been with the company for three decades.

Although the group reported a third straight drop in annual profit in May it said its transformation was on track, and said it would step up the pace of change. However, its shares have fallen 30% over the last year.

With M&S having endured several failed relaunches over the past decade, Norman said he understood why investors might be dubious it would be any different this time.

“We are really tackling at heart, the organisation and the way it works…We are making progress. I do believe the business in many areas is on the right track, in some areas we’re still struggling,” he said.

TROUSERTROUBLE

Rowe highlighted better food sales on a volume basis, and enhanced clothing ranges with improvements in fit, style and value.

But he also noted some major failures, such as not buying enough jeans for a February promotion: “That led to us having some of the worst availability in casual trousers I’ve seen in my life.”

Rowe forecast availability would be better in the autumn.

M&S wants to make at least a third of its clothing and home sales online by 2022

Rowe said investment in online technology was starting to pay off, with product download speeds on the M&S website now the fastest in the UK.

Also over the last year M&S has moved from an eight PM cutoff for next day delivery to a 10 PM deadline.

“I’ve been told by the team not to promise this but we will be at 2400 by Christmas,” Rowe added.

The AGM was attended by about 700 investors. Private shareholders hold about 20% of M&S’ total equity, held either in their own name or through nominee accounts.

(This story has been refiled to fix byline)

(Reporting by James Davey and Navdeep Yadav; Editing by Andrew MacAskill/Keith Weir)

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