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Morrisons cements online grocery expansion through new improved deal with Ocado

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Morrisons has struck a new deal with Ocado that will help the grocer expand its online retail business to cover the whole of the UK at significantly reduced costs over its existing deal.

The move, which sees Morrisons a Top100 retailer in IRUK Top500 research, take capacity in Ocado’s state-of-the-art new warehouse in Erith in Kent, will allow for millions more shoppers to use for shopping.

Meanwhile, Ocado is to develop a store pick solution for, which will lift prior restrictions on using Morrisons won stores to fulfil online orders – this will allow the grocer to services all the areas of the UK the company does not currently cover, such as the South West and Scotland.

Once this deal comes online, Morrisons old contract – which saw the retailer obliged to share a proportion of its future online profits with Ocado — will end. Simultaneously, exclusivity restrictions on Ocado will also be reduced, although it will still be prohibited from serving certain grocery retailers.

“The new investments in online growth are further examples of Morrisons building a broader business and will allow millions more customers all over Britain to enjoy Morrisons good quality fresh food and great value for money,” Morrisons chief executive David Potts told City AM. “As food maker and shopkeeper, we continue to ‘follow the customer’ and move towards achieving capital light, profitable growth online.”

The deal follows moves by Morrisons to bolster its online presence as part of a much needed recovery package. As well as renegotiating a much more favourable deal with Ocado that will save money and extend reach, the retailer has also teamed up with Amazon to supply the retailer with groceries. The latest fruits of this deal has been the launch of AmazonFresh in London this summer.

The move is also going to have an impact on both Morrisons and Ocado’s logistics arms, which our sister title covers in detail here.

Commenting on the deal, Tim Reay, Head of Grocery, Salmon, says: “The new agreement between Morrison’s and Ocado recognises that their original agreement was financially unsustainable. That deal prevented Morrison’s from operating a profitable online proposition which capitalised on their greatest asset – their store infrastructure. Morrison’s have now secured greater freedom in the Ocado arrangement, but in return have agreed to take a significant part of Ocado’s distribution centre in Erith. Moreover, Morrison’s will develop their store-based pick technology exclusively with Ocado. For Ocado’s part, with the promised international grocery client now long overdue and Amazon Fresh looming, this deal is perhaps a recognition that they need to rethink how they approach an immature international grocery market with a more affordable combined store / warehouse solution.”

Rupal Karia, Managing Director of Retail and Hospitality, UK and Ireland at Fujitsu adds: “This new deal between Morrisons and Ocado highlights the increasingly important role digital platforms play when it comes to trends in shopping. Many consumers now prefer going online rather than heading to their local supermarket, due to the growing number of mobile devices and online channels now available and the convenience this afford. The partnership highlights the steps Morrisons is taking to meet the changing needs of consumers. With more customers than ever before shopping online, it’s vital that supermarkets provide a balance of both digital and face to face services that caters for all customers. They need to provides choices from shopping in-store, to online and click and collect. Today’s savvy shopper wants to shop how, when and where they wish and supermarkets need to adapt to this as much as high-street stores; Morrisons is clearly doing this with its partnership with Ocado.”

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