Morrisons strikes online grocery deal with Ocado
The deal will allow Morrisons to enter the online grocery market rapidly with a profitable business model, it claimed.
The Morrisons.com grocery website will have a clear Morrisons brand, while fulfilment will be from Ocado’s recently opened Dordon Customer Fulfilment Centre in the Midlands, with customer deliveries through a Morrisons liveried fleet.
Dalton Philips, Morrisons boss, said: “Customers will go to a Morrisons’ website to order Morrisons’ food, which will be delivered in a Morrisons’ van by a Morrisons’ driver.”
The partnership will combine Morrisons’ affordable fresh food – much of it from the company’s own manufacturing facilities – with Ocado’s leading end-to-end technology, logistics and distribution operations, said the retailer.
‘Very exciting day for us’
He told BBC Radio 4’s Today programme: “This is a very exciting day for us. The arrangements will mean customers get Morrisons’ affordably fresh food but flowing through an Ocado distribution system.”
The nation’s fourth largest supermarket had previously attracted criticism from analysts for its lack of an online offer.
As part of the deal Morrisons will pay up to £170M to acquire the Dordon distribution centre and associated mechanical handling equipment.
The retailer plans to invest a further £46M to accommodate its range at the distribution centre, integrate with Morrisons’ systems and establish a network of delivery spokes.
Morrisons will pay service costs and contribute to research and development spending. It will also divert a share of the profits from Morrisons.com to online grocery distribution business.
Ocado boss Tim Steiner said: “Morrisons’ desire to offer its customers the choice of online shopping illustrates the structural shift we are seeing in favour of the channel. We see Morrisons’ decision to adopt our model to drive its online launch as a further endorsement of our technological and logistical excellence.”
Steiner pledged that his customers would see no change to the service they received from Ocado as a result of the deal.
‘Agreement with Waitrose’
“We will continue to source products under our long-term agreement with Waitrose. And our customers will continue to benefit from the existing high levels of service, wide range of products and competitive prices that they currently enjoy,” said Steiner.
Waitrose had previously voiced concern about the propect of a deal between Morrisons and Ocado.
A Waitrose spokeswoman told FoodManufacture.co.uk: “We have asked to see the detail of the deal and the operating arrangements. Meanwhile, we have instructed lawyers so that we can get a clear and unequivocal view of the contract and examine what might constitute a breach. This process will take some time so we are unlikely to comment again in the near future."
Waitrose.com was continuing to enjoy strong sales growth – up by 50% in the first quarter of the year, she added.
Earlier this week Neil Saunders, md of retail consultancy Conlumino, warned Ocado was "playing with fire", if a prospective tie up with Morrisons alienated Waitrose.
The supermarket expected that its new food.com business would incur £25M in development costs in the year. Total full-year new business development investment would be £65M.
The online partnership is predicted to a positive earnings before interest, tax, depreciation and amortisation in 2016/17 and a positive earnings before interest and tax in 2017/18.
