News 3 mins read

Thoughts on the M&S deal with Ocado

Marks and Spencer is finally entering the home delivery market by tying up with Ocado.

Oliver Guy Oliver Guy

M&S paid dearly for this option, but it will clearly have been evaluated against the cost of doing nothing. 

The £750m price tag paid by M&S was compounded when shares dropped 10% on the news that dividends would be diluted.  The deal, which includes M&S groceries from Ocado and Ocado groceries from M&S, is yet another example of the growth of “co-opetition” and of retail ecosystems which becoming increasingly interesting.  

As analyst Natalie Berg from NBK Retail said: “The prospect of Amazon shaking up the grocery sector and transforming the way we shop is creating some strange bedfellows.”

These “strange bedfellows” deals are happening the world over; they include Kroger & Ocado, Kroger & Home Chef, Morrisons & Amazon, Morrisons & Ocado and Ahold & Hello Fresh.

The growth of retail ecosystems such as these will only get more complex. And it is critical to their success that there is friction-free sharing of data. For example, product and inventory information: When you are selling M&S products via Ocado, and vice versa, you need to be able to exchange data such as detailed product specifications, real-time stock levels and customer order requirements in a friction-free, yet secure and scalable, manner.

As ecosystems expand and grow, it will also be necessary to allow the on-boarding and off-boarding of new partners into the mix very quickly.   Combine these requirements and this creates a unique challenge that APIs are well equipped to deal with – bringing the topic of API Management into very clear focus for anyone who wants to leverage the transformational power of ecosystems.  As McKinsey commented in December – “Shape your ecosystem—and either go big or get out.”

For those using ecosystems to expand their channel reach, doing things badly could have some awkward consequences; it can not only result in disappointed customers but it could also drive up inventory, tying up working capital.   Increased inventory levels is something we are starting to see re-appear in retail as with the expansion into new channels.

Aside from the hard discounters, M&S was the last major UK grocer not offering delivery. It is ultimately a response to the looming threat of Amazon that is driving this and data sharing between the parties will likely be the largest technical barrier.

The ability to share data in a timely and frictionless manner between partners is key and yet again APIs will be a major part of the toolset.

Managed appropriately, APIs can make strange bedfellows operate seamlessly and look like natural partners.

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