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Ocado has threatened legal action against Marks and Spencer as the two retailers clash over a final payment tied to their online joint venture.
M&S struck a deal to buy half of Ocado Retail, the online supermarket, in 2019 as it sought to sell more food online. Under the agreement, M&S paid an initial £562mn and promised another payment of about £190mn if the venture met certain undisclosed targets.
While the venture failed to meet the targets last year, Ocado has said the criteria for M&S to make the final payment should be revised to take into account “several significant decisions and actions taken by Ocado Retail management”, largely during the coronavirus pandemic.
Although online delivery businesses boomed during successive lockdowns, Ocado said it lost about 200,000 active customers after years of consistent growth as it struggled with the demand and was forced to turn shoppers away.
This “significantly and negatively impacted the average number of active customers” last year, the company said on Thursday, and hurt profits, compared with the original business plan agreed with M&S.
It also said it had to increase warehouse capacity to cope with the flurry of orders, “significantly ahead of previous plans, which resulted in excess capacity and excess overheads”.
Ocado argued these factors should be taken into account when measuring Ocado Retail’s performance last year.
If the targets were achieved, they would trigger the full payment or nothing would be paid, according to the contract.
Ocado raised the prospect of taking legal action for the first time on Thursday, as the group reported an annual pre-tax loss of £394mn on sales of £2.7bn. Alongside its online grocery business, Ocado sells robotic technology used in warehouses to other retailers and also has a logistics arm.
Tim Steiner, Ocado’s chief executive and co-founder, insisted the relationship with M&S was strong, but added: “We believe that we have a very solid case to get full payment, we know that M&S may not entirely share that view . . . 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.”
In its results, Ocado said it intended to receive a payment either “via a formal litigation process or settlement”.
In a statement, M&S said: “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.”
In November, M&S chief executive Stuart Machin said he was “positively dissatisfied” with the joint venture after it recorded a half-year loss of £23mn from Ocado. Chair Archie Norman previously told investors he was not happy with the online grocer’s performance. Ocado’s finance chief told reporters that it would make a pre-tax profit in about five or six years.
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