Morrisons and Amazon have announced a wholesale supply deal, which will see Morrisons fresh, frozen and ambient products on sale through Amazon’s Pantry and Prime Now services. Here’s what leading City analysts have to say about the deal.
Bernstein describes the deal as a “change in the competitive landscape” – with Morrisons either orchestrating a clever “divide and conquer” strategy or “letting the Barbarians in”.
“Morrisons may feel that Amazon isn’t really a threat for its smaller stores in the North of England; on the contrary on our recent store visit, we saw a nice new shiny Amazon locker unit for picking up Amazon parcels. This would be a convenient divide-and-conquer outcome where Amazon and Morrisons specialise where they are best and support each other mutually.”
On the flipside, getting access to fresh and frozen products through Morrisons fills a big hole in Amazon’s current grocery offering and could allow it to make a bigger impact on UK grocery. “Any increased push by Amazon to strengthen its UK online food retail activities will be considered bad news for the sector. While we think the impact is ‘manageable’ (limited sales and very specific shopping trips), investors are likely to worry about it and will require even more evidence of each company’s turnaround plans.”
Jeffries sees the deal as an example of “imaginative, lateral thinking”. “We expect the relationship to be in a similar guise to that between Waitrose and Ocado,” it says. “Further details are scant, but we expect Morrisons to have built in robust fall-back provisions given that Amazon will inevitably be in control of pricing to the consumer.”
Given Morrisons’ limited footprint in London, Amazon is an attractive partner, Jeffries adds. “Conversely, we expect the attractions of the Morrisons supply chain to Amazon to be largely weighted to its unique manufacturing base.”
John Ibbotson of the retail consultants Retail Vision says Tesco might now be about to find out what it’s like to be David rather than Goliath. “The problem for the big four is that if you pay £79 a year for Amazon Prime, you get the delivery free. Amazon seems content to deliver at a loss indefinitely. By contrast, it costs the big four approximately £20 to make a food grocery delivery, for which they can only charge up to £5. For the big four, deliveries have just become permanently loss-making. The ramifications of this for the grocery sector are huge.
“The only winner is the consumer. The big four are fighting back with click and collect, but who will want that if Amazon delivers to your door in one hour?”
Credit Suisse worries about the implications for Tesco and Sainsbury’s but is more mixed on what it means for Ocado. The investment bank says the new tie-up between Morrisons and Amazon increases the likelihood that Sainsbury’s will put in a higher bid to secure Argos ahead of rival Steinhoff. It adds that while the initial reaction to a launch of Amazon Fresh is clearly negative for Ocado it may well prompt international retailers without an online proposition to turn to the business for help. “It shows that Amazon is serious, and will serve notice to CEOs and CFOs globally that while signing onto Ocado’s Smart Platform is complicated, waiting until Amazon decides to launch in your home territory is a lot more worrying.”
Shore Capital says the Amazon deal (along with the renegotiation of the Ocado contract) is welcome news for Morrions, as it “provides the basis for national grocery ecommerce coverage on a materially more sustainable basis”.
Little information is available on the deal, but “we sense that this relationship will evolve over time and so the starting point is expected by us to involve modest activity levels centred but not necessarily exclusively upon Morrison vertically produced lines, maybe a few hundred SKUs”.
“We see the tie-up with Amazon as being potentially quite inspired by David Potts […], as it is highly complementary to the business in its current form.”
Retail Remedy praises Morrisons for its ”initiative and discretion” in securing the deal, proclaiming it a ”low cost but strategically advantageous move by Morrisons giving the grocer a lead on its competition which few will have been expecting.”
”Price advantage is a hard battle to win, sapping time and resource. Morrisons has found a way to fight on price without it being all consuming, leaving resource available to find the next way to surprise the competition and win back customers.”
No comments yet