Ocado warns M&S of legal action over food deal

Ocado has warned it may take legal action against M&S if the retailer does not hand over a final payment for their online food joint venture.

The grocery technology firm and M&S signed a deal nearly five years ago for Ocado to sell the retailer's food on the internet.

M&S made an upfront payment of more than £560m and is due to pay £190.7m based on certain targets being met.

However, it is claiming that Ocado has not reached those goals.

Ocado's co-founder and chief executive, Tim Steiner, said that the company believes "we have a very solid case to get full payment, we know that M&S may not entirely share that view ".

A spokesperson for M&S said: "M&S remains committed to the turnaround strategy for Ocado Retail and our focus is on working with them and Ocado Group to deliver it.

"On the specific issue of the contractual contingency payment, our advice is that the financial performance of Ocado Retail means the criteria for the performance payment was not met."

On Thursday, Mr Steiner said: "We would much rather solve this in a nice and constructive way, which is what we're working towards doing."We are very confident that we are owed a substantial sum of money and ultimately I hope we will never get there but we will not walk away from that sum of money."

The joint venture is owned 50:50 by Ocado and M&S. The deal was signed in early 2019 and went live the following year in September during the Covid pandemic when lockdown measures forced more people to shop online for food.

In Ocado's full-year results, which were announced on Thursday, the company made a provision of £28m for the payment. Under accountancy rules, a business is required to show the "fair value" of an asset or liability.

But Mr Steiner told reporters that the £28m estimated valuation of the payment from M&S was "ludicrously low".

In Ocado's results, it said the sum "is significantly lower than the amount that Ocado believes it will receive in the future - either via a formal litigation process or settlement".

Ocado admitted that its retail business had failed to meet the performance measures in the last financial year that would have triggered the automatic payment of the money from M&S, which is due this August.

But it said that "the contractual arrangement with M&S expressly provides for the target to be adjusted for certain Ocado Retail management decisions or actions".

For the year to 3 December, Ocado Retail reported sales of £2.4bn, up from £2.2bn in the previous year. The retail division generates the vast majority of the company's group revenue.

The Ocado group as a whole reported a pre-tax loss of £403m compared a loss of £500m in the previous year.

Ocado said that its retail division had grown the number of active customers and value of the average basket also rose, but people were buying fewer goods.

The number of items per basket fell by 4.5% to 44 as "customers managed their overall basket spend in the current high inflation environment".