Amazon Morrisons deal may threaten Ocado

In a move expected to impact the British supermarket sector, Amazon announced that it has signed a supply agreement with Morrisons supermarket to offer its Amazon Prime Now and Amazon Pantry customers fresh and frozen food products. However, two years ago, Morrisons signed a 25-year deal with Ocado, to become the "exclusive provider of online grocery services for Morrisons," according to Ocado's finance director. Ocado, who also signed a supply deal earlier this year with Amazon, is also said to be in negotiations with Morrisons to share some of the capacity of its customer fulfilment centre currently being built in south east London and its advanced produce-picking technology. Analysts at Credit Suisse see the deal as a threat to Ocado stating it should sell to Amazon. Morrisons' share price rose 5% while Ocado dropped 6.5% at market open. 

 

Hundreds of Morrisons fresh and frozen food products will be available to order from Amazon, after the US online retailer struck its first supply deal with one of the UK’s “big four” supermarkets.

Morrisons, Britain’s fourth biggest supermarket, said on Monday the deal would allow Amazon Prime Now and Amazon Pantry customers access to Morrisons ambient, fresh and frozen products in the coming months.

The British supermarket sector has been convulsed by fierce competition in recent years and analysts have warned that a step up from Amazon could hurt the traditional players even more.

In November Amazon launched a packaged groceries offer for Amazon Prime members, who pay an annual fee of £79.

That was its most ambitious foray into Britain’s growing online grocery market but it stopped short of replicating its broader US Amazon Fresh service, which offers about 20,000 chilled, frozen and perishable products and items from local shops. Retail analysts have speculated the US company was gearing up for a launch of Amazon Fresh in Britain this year.

“The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling,” said Morrisons chief executive David Potts. “This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business. We look forward to working with Amazon to develop and grow this partnership over the coming months.”

The British grocer already has a supply deal with Ocado and on Monday it said it had reached agreement in principle with the online retailer to grow Morrisons.com.

The deal will result in Morrisons taking space in Ocado’s new distribution centre, or customer fulfilment centre (CFC), in Erith, south east London, and Ocado deliver a store pick solution for Morrisons that leverages its technology and the supermarket chain’s shops.

When implemented the deal would expand Morrisons’ online reach to the whole of the UK. The amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrisons to achieve profitable growth online.

Morrisons’ share price was up nearly 5% in early trading to 197p, the biggest riser on the stock market on Monday morning, following the announcement of the two online retail deals. Ocado was the biggest faller, however, shedding 6.5% to 263p.