Morrisons' Amazon deal risks leaving Ocado on the shelf

Supermarket’s shares jump – but jilted online partner crashes by 7.7 per cent

Ocado’s distribution centre in Hatfield, Hertfordshire. The grocery delivery service is under pressure amid demands for an international partnership (Bloomberg)

Morrisons is set to offer hundreds of products via Amazon in a deal that was warmly welcomed by the City. But the supermarket’s other online partner, Ocado, was roundly shunned, as the threat of Amazon in the groceries delivery sector spooked investors.

Shares in Ocado dropped 7.7 per cent, down 21.9p to 260p, despite Morrisons also signing another deal in which the online grocer will offer its services to the supermarket to help it set up in-store picking for home deliveries.

Analysts suggested the fall could be down to some investors’ hopes that Amazon might consider buying out Ocado, rather than teaming up with a rival.

Morrisons shares, by comparison, jumped nearly 6 per cent, up 11.1p to 199p, on the news as the supermarket instantly becomes available for home deliveries nationwide through Amazon’s comprehensive network.

Until now, only certain parts of the country could buy from Morrisons online, following a £210m 25-year deal with Ocado to provide the service and housing the supermarket’s products in its warehouse picking centres.

The deal with Amazon leaves Morrisons with no control of the products on offer, or the prices set, as it will be acting as a wholesale supplier to the website. This means Morrisons products on Amazon could potentially be cheaper than in the supermarket’s own stores.

David Potts, Morrisons’ chief executive, said the agreement was ‘low risk and capital light’ (PA)

However, analysts pointed out that the deal also means Morrisons can increase its sales, without needing to open new stores.

The service will launch in the next few months, with the non-perishable products being offered alongside big name brands as part of Amazon’s Pantry service, open exclusively to Prime members. These will be delivered like any other product bought on Amazon; however, a fresh food delivery service will also be available to Prime Now customers, who can opt for one or two-hour delivery slots. David Potts, Morrisons chief executive, said: “This agreement is built on Morrisons’ unique strengths … The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling.

“This is a low-risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business. We look forward to working with Amazon to develop and grow this partnership over the coming months.”

He also revealed that, after months of negotiations, Morrisons would take capacity at Ocado’s new Erith distribution centre in Kent, with the supermarket’s entire offering available to shoppers in new parts of the south-east.

Tim Steiner, the boss of Ocado, said: “We are delighted to have reached an in principle agreement with Morrisons. This is a win-win arrangement which allows both of us to grow faster, and more profitably.”

He has previously waved away concerns about Amazon entering the market, suggesting he would relish the competition.

However, Ocado is also under pressure to announce an international partnership, after a self-imposed deadline to reveal one passed at the end of last year.