Morrisons tweaks Ocado tie-up to boost online distribution

UK supermarket Morrisons is set to boost distribution of its online business after renegotiating its delivery deal with Ocado.

The retailer today finalized the latest stage in its deal with Ocado, after re-negociating some of the finer print to boost distribution and reduce costs.

By taking space in Ocado’s new customer fulfillment centre (CFC) in Erith in Kent, as announced in February, Morrisons will be able to fulfil online orders via store pick anywhere in Britain, including all areas not currently covered by Morrisons.com.

Key changes have been made to the contract by removing restrictions on store picking, to allow Ocado to develop the store-pick for its partner, cancelling the profit share agreement once this comes into effect, and reducing the amount that Morrisons will have to pay as a Research & Development fee.

The changes “significantly” lower upfront capital costs, it said, and include a break clause after five year.

Chief executive David Potts said the investments in online growth were “further examples of Morrisons building a broader business”, which would allow it to offer products to millions more customers across the UK. “As food maker and shopkeeper, we continue to ‘follow the customer’ and move towards achieving capital light, profitable growth online,” he said.

The aim was always been to achieve profitable growth online, the retailer added.

The tie-in was first announced by ex-chief executive Dalton Philips back in 2013, and originally extended to 23 years.

In February, the Bradford-based retailer unveiled a new supply deal with online giant Amazon, in which hundreds of Morrisons staples – including beers, wines and spirits – would be sold on the premium Amazon Prime Now and Amazon Pantry sites.

Morrisons shelved its standalone wine site, Morrisons Cellar in 2014 and rolled its online wine offering back into the main grocery site, which launched in January 2014 and had limited delivered at the time. Delivery currently covers around half the UK, focussed around the Midlands, the North West, Yorkshire, North London, Bristol and the Cardiff area.