Morrisons is free to deepen it relationship with Amazon after the UK’s fourth-largest supermarket loosened its ties with Ocado, the online delivery service.
The chain has signed a new deal with Ocado, which handles the supermarket’s online store’s deliveries, that will allow Morrisons to sell directly online through other platforms, including Amazon marketplace and Deliveroo, and to use other partners to deliver goods from Morrisons.com.
In return, the deal allows Ocado to take back distribution centre space currently used for delivering Morrison.com orders for nearly two years.
Until February 2021, Morrisons is giving up its right to use 30% of the space at Ocado’s new centre in Erith, in south-east London, which handles 10,000 Morrisons orders per week.
The supermarket will save costs because it will no longer be liable for fees related to the development of the Erith warehouse which is yet to reach full capacity. Morrisons will fulfil online orders from its own stores and from Ocado’s Dordon warehouse.
Under the new deal, Ocado will also gradually gain more freedom to work with other partners over several years. Until now it had been completely blocked from delivering for Ocado’s key competitors: Tesco, Sainsbury’s, Asda, Aldi and Lidl.
However, Ocado is not expected to set up deliveries with another major supermarket any time soon as it focuses on a new partnership with Marks & Spencer, which is scheduled to kick off next year. M&S will replace Waitrose as the main source of groceries for Ocado.com.
David Potts, the chief executive of Morrisons, described its new deal with Ocado as a “win-win for both companies”.
“We are pleased to be helping our partner in times of need after the recent fire. We will keep growing Morrisons.com for our customers and save some cost, returning to the Erith [site] when it is more mature.
“Our new agreement allows us to have more than one digital partner, and opens the way for significant potential opportunities and partnerships in this important growth area for Morrisons.”
Potts admitted that online sales growth was likely to be affected in the short term but he said the company was working to mitigate that as much as possible.
He said the deal would allow Morrisons, which already wholesales some of its products to Amazon, to look at new opportunities such as ultra-fast deliveries or meal deliveries with new partners.
Morrisons is keen to find new ways to expand as it expected the grocery market to remain “competitive and challenging”.
The company said in a first-quarter trading update on Thursday that sales at its established stores rose by just 0.2% in the three months to 5 May as shoppers’ confidence was hit by Brexit uncertainty. Underlying group sales rose 2.3% thanks to strong wholesale trade with Amazon and other partners including McColls convenience stores and MPK garages.