Morrisons to go online by January after agreeing 25-year Ocado distribution deal

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Morrisons has agreed to pay Ocado £170m upfront as part of a 25-year agreement to help the supermarket launch an online grocery business by January.

The Bradford-based supermarket will make the initial capital payment to acquire the newly opened distribution centre in Dordon, Warwickshire, and associated equipment, as well as a licence to use Ocado’s technology.

A further £46m will be invested to expand Dordon to accommodate Morrisons and build a network of delivery spokes.  

Morrisons will take over 50% of the capacity at Dordon and the rest will continue to be used by Ocado. The supermarket will build a website Morrisons.com and deliver from Dordon through a Morrisons liveried fleet.

Morrisons will also pay Ocado annual service costs and a contribution to R&D expenditure. The agreement also makes provision for the joint development of new CFCs in the future, while Ocado will receive a share of the positive EBIT of Morrisons.com.

“This agreement is a significant strategic step for Morrisons.  From a standing start, Morrisons will be competing in the fast growing on-line channel by the end of this year with a really compelling proposition. The customer gets our affordable fresh food delivered by Ocado’s state of the art distribution system,” said Morrisons CEO Dalton Philips.

Morrisons said it expected the new online business to have a positive effect on EBIT by 2017/2018.

Ocado CEO Tim Steiner said the agreement was a validation of its model and could be stepping stone to future tie-ups in other countries.

“This validation should support the internationalisation of our model as well as the growth of our UK business by increased market use of our operating model, enhancing capital efficiency and improving returns,” he said.

Ocado said the online grocer’s supply agreement with Waitrose would be unaffected by the deal.

But on BBC Radio 4’s Today programme this morning, Waitrose MD Mark Price reiterated that his legal team would study the agreement in detail to ensure that there is no breach with its Ocado contract, which runs until 2020.

Readers' comments (4)

  • This is an interesting development for the industry and exciting news for Morrisons’ customers.

    Morrisons’ crown jewel has always been its Market Street and its skilled butchers, bakers and fishmongers and if the positive reactions on its Facebook page this morning are anything to go by, there's a huge appetite from shoppers to have the Market Street experience delivered to their doors!

    As a later mover into the market Morrisons will need to deliver something different to its competitors and this morning’s announcement seems to herald just that - a combination of Morrisons’ Market Street and Ocado’s operating platform could catapult them forward to give them the nationwide coverage which they've been unable to achieve through bricks and mortar - especially in the south east. This move, coupled with key learnings from their stake in Fresh Direct in New York should set Morrisons up nicely. With that in mind it's little wonder that Mark Price has taken his bat home! From the details released this morning however, it shouldn't change the relationship between Ocado and Waitrose. It's a good deal for all parties - but above all, a great deal for the customer.

    Catherine Shuttleworth, CEO at Savvy Marketing.

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  • Hopefully a price war will come about. I prefer my items from morrisons and online shopping from this supermarket is long overdue. I feel let down on selection with offers from other stores so really cant wait for them to be up an running. Lets hope the quality and price are kept reasonable. I also hope that their instore product availability is the same as their online offers. I will be switching as soon as this is available and delivers to my area.

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  • This is long awaited news. I have been waiting for Morrisons to catch up for years. I use to shop at Morrisons but when i wanted online shopping i had to change to Tesco and Asda. I have always prefered Morrisons Shopping but as they didnt do online i had to change. Hopefully we wont have to wait years for it to be delivered in the Beverley Area East Yorkshire

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  • looking forward to Morrison's groceries online but when?

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