Ocado shares surge as M&S deal pays off

Shares in Ocado hit a record high after the online grocer revealed Marks & Spencer’s products have been more popular with customers than Waitrose’s were.

Ocado has been selling M&S goods on its website alongside its own since September 1, when a 20-year partnership with Waitrose came to an end.

Allaying fears shoppers would desert Ocado once it made the switch, finance boss Duncan Tatton-Brown said there was ‘practically no sign’ that it had lost any customers.

There has been particularly strong demand for M&S’s famed ready meals and Percy Pig treats, as well as staples such as milk, cucumbers and carrots.

And shoppers have put an extra five items or so in their baskets because of the ‘excitement around the launch of M&S products’, Ocado said.

Ocado shares surged on the update, rising 10.7 per cent, or 253p, to 2608p, while M&S shares climbed by 4.4 per cent, or 4.55p, to 109.25p.

Ocado shares have risen 103 per cent this year and the company is now valued at £19.5billion, just £2billion less than Tesco.

Ocado had a tiny 1.7 per cent share of the UK’s overall grocery market in the most recent 12-week period, compared with a near 27 per cent share held by Tesco.

Ocado hailed the ‘successful switchover’ from Waitrose to M&S as it posted a huge rise in sales during the 13 weeks to September 1.

Quarterly revenue at its retail business surged by 52 per cent to £587million compared with the same period of last year.

And the average number of orders it received per week rose by 10 per cent to 345,000, as it managed to keep hold of customers who signed up during lockdown.

Ocado shares have risen 103 per cent this year and the company is now valued at £19.5bn, just £2bn less than Tesco

Ocado expects profits to reach around £40million in 2020. It booked a £43.3million profit in 2019.

The online grocer notched up its busiest-ever day for orders when the M&S partnership launched on September 1. 

But it also got off to a rocky start, with some customers complaining that orders had been cancelled at short notice.

Ocado blamed this on a ‘surge in demand’. It plans to increase its capacity by a further 40 per cent next year by building three more of its robotic warehouses in Andover, Bristol and Purfleet.

M&S is pinning its hopes on the tie-up after the pandemic hammered its performance on the High Street and it announced plans to cut 7,000 jobs from its 66,000-strong shop-floor workforce. 

Analysts had been sceptical last year when it paid £750million to buy a 50 per cent stake in Ocado’s retail business, which marks the first time its groceries have been put on sale online.

So far the 4,000 Waitrose products that were available on Ocado’s site have been replaced by 4,400 M&S items.

Another 800 food options will be added to its range in the run-up to Christmas, capitalising on M&S’s reputation for doing high-quality party treats.

Analysts said the results had not just been promising for Ocado, but also for M&S.

Sophie Lund-Yates, an equity analyst at investment manager Hargreaves Lansdown, said: ‘This could bode well for Marks & Spencer, whose sales could do with a boost, and who staked a lot on this deal paying off.

’98pc of customers are already shopping at M&S, though, so it will be interesting to see how many of these sales will have simply transferred from stores.’

Peel Hunt analysts said Ocado had had a ‘storming’ third quarter. They said: ‘The M&S transition is performing excellently: nearly every customer is already shopping for M&S products and the weighing in-basket of those products is greater than it was with Waitrose’s products.’