What’s going on between Ocado and Marks and Spencer?

Grocery tech firm Ocado and Marks and Spencer are currently embroiled in a dispute over a final payment related to their online food joint venture.

Ocado and retail giant Marks signed a 50:50 deal nearly five years ago for Ocado to sell the retailer’s food via its online store, with Marks paying an upfront sum of over £560m. It is due to pay an additional £190.7m this August, based on certain performance targets being met.

But Marks has claimed Ocado has not reached these performance targets so it is withholding the final payment. This disagreement has escalated, with Ocado warning of potential legal action if its partner does not hand over the final payment.

Ocado’s co-founder and chief executive, Tim Steiner, said that the company believes it has “a very solid case to get full payment,” while acknowledging that “Marks and Spencer may not entirely share that view.”

For its part, Marks has said the financial performance of Ocado Retail, the joint venture, has failed to reach expectations.

A spokesperson for the company said: “Marks and Spencer 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, Ocado posted a pre-tax loss of £394m for its 2023 financial year, compared with the previous year’s loss of £500m. It fell short of the targets required for the automatic payment, leading to an estimated provision of just £28m according to accounting regulations.

However, Ocado’s accounts revealed that the arrangement allowed for adjustments to the targets, particularly considering management decisions and actions had to change swiftly during the Covid-19 pandemic. It argued that this period should be factored into the criteria for the final payment.

Ocado said that the £28m provision was considerably lower than what they anticipate receiving in the future, whether through litigation or settlement.

During discussions with reporters on Thursday, Steiner slammed the suggested payment amount as “ludicrously low”.

He added: “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 latest spat brings to the fore the upmarket high street shop’s broader dissatisfaction with the joint venture’s performance. Marks’s chairman Archie Norman has previously expressed disappointment, acknowledging that there is work to be done to see a proper return.

Last year, Norman told investors he was “not happy” with Ocado Retail’s performance, admitting there was “work to do”.

Ocado shares were down three per cent on Friday morning but have plunged over 33 per cent since the start of the year.