Morrisons signs deal with Ocado to launch online grocery service
Morrisons has signed a longterm agreement with online grocer Ocado which will enable it to launch its first online grocery delivery service by January 2014.
The supermarket said the agreement would allow it to enter the online grocery market “quickly with a profitable business model”.
The deal will see Morrisons benefit from Ocado’s technology, logistics and distribution operations with fulfilment from Ocado’s recently opened Dordon customer fulfilment centre in the Midlands. Customer deliveries will be handled through a Morrisons liveried fleet.
The agreement will comprise a technology and services arrangement and a sale and leaseback of property and equipment at Dordon.
Never Miss a Retail Update!Morrisons will make an initial capital payment of up to £170 million to Ocado to acquire Dordon and associated mechanical handling equipment, as well as a licence and integration fee.
A further £46 million will be invested to expand Dordon to accommodate Morrisons range, integrate with Morrisons systems and establish a network of delivery spokes. The supermarket will also contribute to research and development costs and pay service costs to Ocado. In addition, the agreement makes provision for the joint development of new customer fulfilment centres if needed.
Morrisons said the new online food business will incur a further £25 million development costs in the year, as a result of which its total full year new business development investment will be £65 million. The new business is expected to be profitable in the 2016/17 financial year.
The supermarket said that the website will have a clear “Morrisons look and feel”.
Dalton Philips, chief executive of Morrisons said: “This agreement is a significant strategic step for Morrisons. From a standing start, Morrisons will be competing in the fast growing on-line channel by the end of this year with a really compelling proposition. The customer gets our affordable fresh food delivered by Ocado’s state of the art distribution system. I’m confident that Morrisons.com will grow over time to be an operation of real scale and significance whilst creating meaningful long-term value for Morrisons shareholders.”
Ocado said its customers and the current contractual agreement with Waitrose would “remain unaffected by these arrangements”.
Tim Steiner, chief executive of Ocado said: “Our customers will see no change to the service they receive from Ocado as a result of this agreement. 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.”
Prior to the agreement being announced, Waitrose chief executive Mark Price expressed concern about the potential tie-up with Morrisons and told the BBC: “I’ll want to look really closely at that contract to see whether there is any breach of the agreement we have (with Ocado)”.
