Ocado range of products “will be bigger and better” under M&S deal

Ocado has said its product range will be 50% bigger and offer lower prices and better quality products when it switches from Waitrose to Marks & Spencer next year.

The online grocer’s finance chief, Duncan Tatton-Brown, said it will stock 6,000 M&S products, compared with the 4,000 it sells as part of its supply deal with Waitrose, which ends in 2020. The alternatives on offer would be the “same price or lower, and of the same quality or better” than the Waitrose ones, he said.

“Marks & Spencer has a lot more products than Waitrose so customers should find matching products from the existing range at the same or a cheaper price – and a few things they didn’t know they needed,” said Tatton-Brown.

This year M&S paid £750m for half of Ocado’s UK retail business as part of a plan to expand its grocery division, which does not have an online presence. However, some analysts are concerned Ocado risks losing customers because shoppers who were loyal to Waitrose do not regard M&S products as an adequate replacement.

Tatton-Brown said polls showed customers were warming to the new lineup with a decline in the number saying they might shop elsewhere.

A range review had highlighted some gaps, he said, but most were easy to fix. M&S, for instance, needed to start stocking bigger pack sizes, such as larger blocks of cheddar cheese and multipacks of plum tomatoes. It also needed to expand some of its store cupboard ranges by introducing new flavours of squash, for example.

Despite successive costly management overhauls, M&S is once again undergoing an expensive reinvention. But while its clothing business is mired in a long-running sales slump, its food arm has proved more resilient to changing shopping habits.

The partnership with Ocado is one of the biggest corporate steps the company has made in its 135-year history.

Its chief executive, Steve Rowe, wants to attract more families to the food halls, which have traditionally been considered upmarket convenience stores aimed at commuters and singletons rather than a place to do a weekly shop. That perception that needs to change if the Ocado deal is to succeed.

As the preparations for the autumn switchover ramp up, M&S has been trying out larger stores, which are able to stock its full range of 6,000 products.

At present, the retailer only has a dozen sites such as these – most of its stores stock only about 2,000 items, compared with the 25,000 items carried in a typical supermarket (the Ocado site carries 55,000 products). M&S has also embarked on a programme of price cuts as it tries to shake off a reputation for being expensive.

The update came as Ocado Retail, the subsidiary co-owned by M&S that operates robotic warehouses in the UK, reported that sales rose 10.8% to £429.1m in the three months to 1 December. The number of orders per week increased from 317,000 to 350,000 but the average order size remained static at £105.

After nearly a decade as an unloved listed company, Ocado has become a stock market darling after its chief executive, Tim Steiner, finally sold this grocery-picking expertise to several foreign retail chains.

One blockbuster deal will result in the construction of 20 warehouses for US supermarket firm Kroger. Most recently, Ocado struck a deal with Japan’s largest supermarket operator Aeon.