Supermarket Morrisons has announced today that it is to kickstart its online grocery offer this year after signing a deal with online grocer Ocado.
Combining Morrisons’ fresh food proposition with Ocado’s technology, logistics and distribution operations, the long-term agreement will see Morrisons.com delivering to customers by January 2014.
Morrisons has agreed to a capital payment of £170 million to acquire Ocado’s Dordon Customer Fulfilment Centre and associated equipment, investing a further £46 million to aid expansion of the centre and integrate its systems.
Ocado’s CEO Tim Steiner said of the deal: “Morrisons desire to offer its customers the choice of online shopping illustrates the structural shift we are seeing in favour of the channel.
“We see Morrisons decision to adopt our model to drive its online launch as a further endorsement of our technological and logistical excellence.
“This validation should support the internationalisation of our model as well as the growth of our UK business by increased market use of our operating model, enhancing capital efficiency and improving returns.”
The two grocers initially held talks on a possible tie-up in March after Morrisons came under growing pressure to build an online presence to compete with rivals though earlier this week, Waitrose Managing Director Mark Price threatened to veto any deal due to its long-standing relationship with Ocado.
While Morrisons anticipates that the move will incur costs in the short-term, it expects its online business to generate positive EBITDA in 2016/17 and noted that the site will have “a clear Morrisons look and feel”.
Dalton Philips, CEO of Morrisons explained the significance of the news, commenting: “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.
“I’m confident that Morrisons.com will grow over time to be an operation of real scale and significance whilst creating meaningful long-term value for Morrisons shareholders.”