Ocado has dropped its claim for a roughly £190 million payout from Marks & Spencer (M&S) tied to their Ocado Retail joint venture, The Times reported Tuesday. The decision ends a dispute over a deferred payment that had been hanging over the partnership since its formation in 2019.
Instead of pursuing the payment, both companies say they will now focus on expanding order capacity and driving growth at Ocado Retail, the online grocery business they own 50-50.
Background of the dispute
In February 2019, M&S paid Ocado £562.5 million for a 50% stake in Ocado Retail. The deal also included a target-linked earn-out of up to £187.5 million plus interest, due five years later. That deferred payment was designed to give Ocado an extra reward if the joint venture hit certain performance targets.
However, the earn-out later became the center of a dispute, because it affects how the partners split the upside from their 50-50 business. Ocado had been seeking roughly £190 million from M&S under that clause, but has now decided to drop the claim.
The move comes as both companies face a challenging retail environment in the UK. UK retail sales have been under pressure from high inflation and cautious consumer spending, though the pace of decline has slowed recently.
What it means for investors
For Ocado, dropping the claim removes a source of uncertainty and potential legal costs. The company can now focus on its core business: providing its automated warehouse technology to grocery retailers worldwide, as well as running Ocado Retail with M&S.
For M&S, the decision avoids a potentially large cash outflow. The retailer has been working to improve its own performance, and a £190 million payment would have been a significant hit. M&S shares have been under pressure as the broader retail sector faces a squeeze from rising costs, as highlighted in a recent Jefferies report on retail margins.
The joint venture itself is now expected to invest more in expanding order capacity — meaning more delivery vans, more warehouse space, and potentially faster delivery times. That could help Ocado Retail compete more effectively with rivals like Tesco, Sainsbury's, and Amazon Fresh.
Broader context
Ocado Retail has been growing its customer base and order volumes, but profitability remains a challenge. Online grocery delivery is a low-margin business, and the company needs to scale up to achieve sustainable profits.
The decision to drop the claim suggests both partners are aligned on the need to reinvest in the business rather than fight over past payments. That could be a positive signal for investors who were worried about friction between the two companies.
Ocado's technology business — which licenses its automated warehouse systems to retailers like Kroger in the US and Casino in France — is the main driver of its long-term value. But the joint venture with M&S remains an important proof of concept for that technology.
Investors will be watching for any updates on order capacity expansion and whether the joint venture can achieve profitability. The broader market has been volatile recently, with the S&P 500 dropping on disappointing tech earnings, but Ocado's stock is more tied to its own operational progress than to broader market moves.
What to watch next
Key metrics to monitor include Ocado Retail's order growth, average order value, and path to profitability. Any announcements about new capacity investments or technology deals will also be important.
For M&S, the focus remains on its own retail turnaround, including clothing and home sales, as well as its food business. The resolution of the Ocado dispute removes one distraction, but the retailer still faces a tough consumer environment.
The decision to drop the claim is a pragmatic move that allows both companies to move forward. For everyday investors, it means less legal uncertainty and a clearer focus on the operational performance of the joint venture.
