Ocado ‘cuckolded’ as Amazon gets Fresh with Morrisons

Ocado ‘cuckolded’ as Amazon gets Fresh with Morrisons

As Ocado’s partner, Morrisons, climbs into bed with Amazon, David Jinks of the international delivery company Fastlane International asks where Ocado should look next to boost margins. A 13.6% rise in quarterly sales seems good news for Ocado shareholders and confirmation of the growing demand for online groceries; especially as Asda supermarket sales in comparison fell by an eye-watering 7.5 per cent in the three months to June 30. But delivery experts Fastlane International say Ocado has good reason to warn of pressure on its profit margins, after Ocado’s partner Morrisons also jumped into bed with Amazon.

Fastlane’s Head of Consumer Research, David Jinks MILT says, ‘Ocado is the only ‘supermarket’ without brick and mortar stores: it is reliant on home deliveries, and the margins on these deliveries are tight enough to squeeze the pips from its Easy Peeler oranges. Ocado seemed to have the answer by forming a relationship with Morrisons to supply the technology and delivery network for the store; something it’s been doing since 2014. But Morrisons has proved to be something of a fickle partner; and has now also embarked on a relationship with Amazon: which is delivering Morrisons food.’

Earlier this year Amazon was seen to be the solution to Ocado’s problems, with many analysts predicting a link-up between the two, in what seemed a marriage made in heaven. But today it is Morrisons who are building the closest relationship with Amazon. This might seem like sleeping with the enemy; as Amazon is expanding its Fresh one-hour food deliveries rapidly; but Morrisons think it’s worth the risk and has just announced the introduction of 100s of Amazon lockers in its stores.

Says David: ‘This leaves Ocado something of a cuckold. Post the Morrisons-Amazon hook up, Ocado had to renegotiate its relationship with Morrisons. Ocado has lost half the amount Morrisons were paying for Ocado’s R&D and its 25% cut in future online Morrisons profits. It’s by no means a divorce; but neither is it what Ocado would have signed up for in the pre-nup. And it’s not the first time Ocado has suffered a break-up: it was originally wedded to Waitrose; but Waitrose eventually launched its own online delivery service; though Ocado still delivers Waitrose branded products as well.’

In the meantime, it looks as if it will be Morrisons that benefit from the growth of Amazon’s Ocado-rivalling Fresh service. Observes David: ‘It’s an open question whether this is a clever move from Morrisons, or whether it is spending a lot of effort feeding a cuckoo in its nest. Only time will tell on that.’

David concludes: ‘If I were a Ocado shareholder, looking at the impact Amazon has on any market it moves into, from books to toys to electricals; I’d be hoping Ocado keeps its mind open to any approach from Amazon in the future. It’s the relationship Ocado really needs.’

For more information on Amazon’s e-commerce ambitions see: https://www.wedelivertheworld.co.uk/blog/business/is-alibaba-a-better-bet-than-amazon/

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