Ocado has stated that it may take legal action against its joint venture partner, Marks and Spencer (M&S), over performance-linked payments.

The firm, which licenses grocery technology, said that M&S is due to pay a final instalment of £190.7m, as part of the £750m partnership between the firms which began in 2019.

However, Ocado confirmed in its annual financial results that the joint venture, named Ocado Retail, had “failed to meet the performance measures” for the financial year that were required for the automatic payout.

Ocado has said that according to accounting rules, a payment of £28m has been determined as fair value in line with performance, but the chief executive and co-founder of Ocado Group, Tim Steiner, has labelled this as “ludicrously low”.

As a result, the firm has said it is considering “a formal litigation process of settlement” in order to secure a larger payment.

Ocado reported a group revenue jump of 9.9% to £2.8bn in the 53 weeks to 3 December 2023, with Ocado Retail reporting a 7% increase.

Although the group posted a £394m loss in the past year, Steiner said that the firm has made "good progress".

Steiner said: "I am pleased to report good progress across the group in 2023. Our technology is transforming the way people shop for food as we help some of the world's best and most innovative retailers set the bar for excellence in grocery ecommerce worldwide.

"Future success will be driven by the characteristics that have always set Ocado apart: our ability to solve some of the most difficult engineering challenges in the market, our capacity to innovate at pace, and our discipline to turn vision into reality. I'm confident that we will turn these qualities into faster growth, stronger cash flows, and higher returns, in the current financial year and beyond."

Investment director at AJ Bell, Russ Mould, added: "If you squint your eyes enough then Ocado posted a rare profit for 2023 – although only once several exceptional items had been set aside. The idea Ocado could licence its platform to help supermarkets around the world set up their own web-based solutions captured the imagination. However, despite agreeing some deals progress has largely been slow.

"Management at first blamed COVID restrictions for preventing it from meeting companies to agree contracts. Since then, the company has been plagued by operational issues, a patent dispute and surging costs. The company has also faced criticism from the partner on its Ocado Retail domestic operation, M&S, so the market will be somewhat reassured to see signs of improvement on this venture with a return to underlying profit.

"One problem Ocado has faced is smaller basket sizes as, given the fixed costs involved in packing and delivery, people ordering less has a material impact on profitability. The hope will be that an improving economic picture allows shoppers to loosen the purse strings a touch and buy a bit more."

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