Morrisons eyes online growth with new Ocado home delivery deal

Morrisons has struck a new deal with online grocer Ocado.

The Bradford-headquartered supermarket’s restructured agreement with Ocado will enable Morrisons.com to boost its profits across Britain.

The re-negotiated contract includes several changes, such as 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.

As previously announced, Morrisons has agreed to take capacity in Ocado’s new Customer Fulfilment Centre (CFC) in Erith.

Millions more customers will now be able to shop with Morrisons.com. This arrangement has significantly lower upfront capital costs than the original operating agreement and includes an option to break after five years.

Ocado will also 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 Morrisons will still be prohibited from serving certain grocery retailers.

Once Morrisons.com is operational from Erith, Morrisons will pay Ocado a reduced annual R&D fee.

The extension of Morrisons’ online offer nationwide, through its investments in Erith and store pick, means that the break-even point for Morrisons.com will be slightly later than originally planned when the business operated solely from the Dordon CFC.

The fourth largest supermarket in the UK believes that the annual Morrisons.com EBIT loss will continue to reduce each year and to be a key component of the £50m-£100m incremental profit opportunity announced at its preliminary results in March 2016.

Morrisons’ capital expenditure guidance of around £450m for 2016/17 and a sustainable range of £400m-£450m per annum in future years is unchanged.

David Potts, chief executive, 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.”

Looking to promote your product/service to SME businesses in your region? Find out how Bdaily can help →