Morrisons agrees new terms with Ocado
Morrisons has agreed new terms with Ocado which the supermarket says will allow it to extend Morrisons.com coverage across the UK. In a statement sent to Post&Parcel this morning, Morrisons said: “Morrisons has re-negotiated some components of the original contract with Ocado. The principal changes are: the restriction on store pick has been lifted, the profit share agreement will be cancelled and the Research & Development (R&D) fee will be reduced.”
Morrisons added: “Ocado will develop a store pick solution for Morrisons.com. Prior restrictions will be lifted, enabling Morrisons to fulfil online orders via store pick anywhere in Britain, including all areas not currently covered by Morrisons.com.
“Once the store pick model becomes operational, Morrisons contractual obligation to share a proportion of its future online profits with Ocado will end. At this point the exclusivity restrictions on Ocado will also be reduced, although it will still be prohibited from serving certain grocery retailers.”
Morrisons has also agreed to take capacity in Ocado’s new Customer Fulfilment Centre (“CFC”) in Erith – and it said the arrangement “has significantly lower upfront capital costs than the original operating agreement and includes an option to break after five years”. Once Morrisons.com is operational from Erith, Morrisons will pay Ocado a reduced annual R&D fee.
Commenting on the renegotiated terms with Ocado, David Potts, Chief Executive of Morrisons, said: “The new investments in online growth are further examples of Morrisons building a broader business and will allow millions more customers all over Britain to enjoy Morrisons good quality fresh food and great value for money. As food maker and shopkeeper, we continue to ‘follow the customer’ and move towards achieving capital light, profitable growth online.”
The move was welcomed by the investor community. Connor Campbell, a senior market analyst at www.spreadex.com, commented: “In a move set to bolster both businesses Morrisons and Ocado have announced a more expansive version of their previous partnership, one that will see the former now deliver across the entirety of the UK. Investors were impressed with the decision, with Morrisons jumping 2% and Ocado climbing over 5%. The fact that the two have worked together in the past means it should be a smooth transition into this wider service, with both benefiting from a wider reach around the country.
Morrisons and Ocado started working together in 2013. Earlier this year, however, Morrisons also started working with Amazon.
