UK: Morrisons to launch online groceries business under £170m deal with Ocado

Morrisons has agree a deal with delivery company Ocado which will enable it to launch an online groc

Morrisons has agree a deal with delivery company Ocado which will enable it to launch an online groceries business by the end of the year - Credit: PA

Supermarket Morrisons is to launch an online groceries business by the end of this year after unveiling a tie-up with delivery firm Ocado today.

The launch will see the chain use Ocado’s recently opened distribution centre in Warwickshire for deliveries through a Morrisons-liveried fleet.

The 25-year deal, which involves Morrisons paying up to £170million to Ocado to acquire the site and equipment, 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 told the Sunday Telegraph last week that he “would never knowingly sign a contract with Ocado that agreed to them working with another retail competitor”.

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But Ocado chief executive Tim Steiner said today’s agreement would have no impact on its existing arrangements.

He added: “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 per week at its peak. Around half of this will be available to Ocado.

Morrisons, the UK’s fourth-biggest grocer, which employs 129,000 staff at 498 stores, has lagged behind its major rivals because it lacks a meaningful presence in the two fastest growing sectors of the market – online and convenience stores.

It recently reported a 7% drop in full-year profits to £879m, based on sales of around £18.1billion over the year.

Morrisons will make an initial payment of up to £170m to Ocado 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, integrate with Morrisons systems and establish a network of delivery spokes.

On an annual basis, Morrisons will pay service costs and a contribution to research and distribution expenditure. Ocado also has a distribution site at Hatfield.