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.