Markets

Ocado plays Ftse while Marks & Spencer flirts with danger

Ocado shares have more than tripled since November, as M&S is in flux

The rise of Ocado shares has put its valuation multiples squarely in line with Amazon. Photograph: Katie Collins/PA Wire

Thu May 31 2018 - 06:30

The inclusion of online supermarket grocer Ocado in the UK's benchmark Ftse 100 index and the flirtation of bricks-and-mortar retailer Marks & Spencer with relegation from the influential index highlights the evolution that is taking place in consumer spending.

As noted by Bloomberg on Wednesday, Ocado shares have more than tripled since the beginning of November amid a flurry of technology-licensing deals, including a landmark pact this month with US retailer Kroger, which analysts at HSBC and IG Group Holdings Plc said has altered the market's view of the company. The Kroger deal sent Ocado's stock surging 44 percent in a single day.

By contrast, Marks & Spencer is in flux, announcing last week that it plans to close 100 shops by 2022, in a move that will result in the elimination of thousands of jobs. This is part of a move to repair the company’s profits.

The Guardian newspaper quoted Sacha Berendji, M&S's retail, operations and property director, as saying the company was trying to make its store estate "more relevant" and better able to support the growth of its website.

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The rise of Ocado shares has put its valuation multiples squarely in line with online giant Amazon.

New data yesterday from research group IGD suggests that the trend towards online food and grocery retailing will only accelerate in the years ahead.

IGD predicted that UK online grocery sales would grow 48 per cent by 2022 and account for 7.5 per cent of the total grocery market there. In China the online grocery market is expected to grow 286 per cent by 2022 and account for 11.1 per cent of the total market. The US market is forecast to grow by 129 per cent over the same period.

If these predictions turn out to be correct, M&S’s stay of execution from being dumped from the Ftse 100 might only be temporary.

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