SUPERMARKET chain Morrisons will start its online groceries business by the end of this year – after unveiling a tie-up with delivery firm Ocado.
The launch will see Bradford-based Morrisons use Ocado’s new distribution centre in Warwickshire for deliveries using a Morrisons-liveried fleet.
The 25-year deal involves Morrisons paying up to £170m to Ocado to acquire the site and equipment.
It is controversial because Ocado is already linked with Waitrose, exclusively delivering the supermarket’s products.
Morrisons chief executive Dalton Philips said: “This agreement is a significant strategic step for Morrisons.
“From a standing start, Morrisons will be competing in the fast-growing online 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.”
Waitrose is reported to be examining the tie-up after boss Mark Price was quoted as saying last week that he “would never knowingly sign a contract with Ocado that agreed to them working with another retail competitor”.
Ocado chief executive Tim Steiner said the agreement with Morrisons would have no impact on its existing arrangements.
He said: “We will continue to source products under our long-term agreement with Waitrose and our customers will continue to benefit from the existing high levels of service, wide range of products and competitive prices that they currently enjoy.”
With the addition of planned new capacity, the Ocado site at Dordon, Warwickshire, will be able to handle up to 190,000 orders a week at its peak. About half of this will be available to Ocado.
Shares in Ocado closed at 274.1p, a gain of 36% or 72.2p. Morrisons closed 3.9p higher at 286.5p.
The UK’s fourth-biggest grocer, which has stores at Waterloo and Meltham among its 498 outlets and employs 129,000 staff, has lagged behind its major rivals because it lacks a meaningful presence in the fast-growing online and convenience store sectors.
Morrisons recently reported a 7% drop in full-year profits to £879m on sales of about £18.1bn.
The company will initially pay Ocado up to £170m to acquire Dordon and associated handling equipment as well as a licence and integration fee.
A further £46m will be invested to expand Dordon to accommodate the Morrisons range, link it to Morrisons’ systems and establish a delivery network.
Panmure Gordon stockbrokers called the tie-up an “excellent deal” for Ocado, but warned that it increased the possibility of Waitrose walking away from its supply agreement when the current contract ends in 2017.
