Amazon has sealed an important deal with supermarket group Morrisons to expand its start-up groceries delivery operation in the UK while rival Ocado is set to also expand its existing partnership with the supermarket firm.
Morrisons and Amazon today announced a new supply agreement through which “hundreds” of Morrisons products will be available to Amazon Prime Now and Amazon Pantry customers in the coming months. Morrisons will provide a wholesale supply service to Amazon, allowing Amazon’s customers access to a wide range of Morrisons ambient, fresh and frozen products.
Amazon Pantry was launched last November as a nationwide food delivery service exclusively for its “millions” of Prime members in the UK, although the company did not name its food suppliers at the time. Customers can order from more than 4,000 different non-perishable everyday goods, including food, drink and household goods. Products arrive in a dedicated 20kg capacity box with One-Day Delivery for £2.99.
Amazon Prime Now is the company’s urgent, same-day delivery service for different kinds of goods that is currently being expanded to various cities across Britain.
David Potts, Morrisons Chief Executive, commented: “Today’s agreement is built on Morrisons’ unique strengths as a food maker. 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.”
In parallel, Morrisons announced an agreement in principle to broaden its existing partnership with Ocado. The online grocer provides logistics support and a rapid delivery service for the supermarket group.
Under the new agreement, Morrisons would take space in Ocado’s new Customer Fulfilment Centre (“CFC”) in Erith, south-east London, with Ocado delivering a store pick solution for Morrisons that leverages Ocado’s technology and Morrisons store assets. When implemented, this would enable Morrisons.com, working with Ocado, to sell to customers all over Great Britain. The Erith CFC is due to go live at the end of 2017 and is expected to have capacity of 210,000 orders per week.
However, Morrisons cautioned that this amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrisons to achieve profitable growth online. There can be no certainty that an agreement will be concluded.
Ocado CEO Tim Steiner 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, in a grocery market where channel shift is now an unquestionable reality.
"This potential deal demonstrates Ocado has the technology and know-how to help partners grow their online businesses rapidly and successfully, and take advantage of consumers' increasing desire for the convenience, choice, quality and value offered by online shopping and enabled by the Ocado Smart Platform.”
The Morrisons agreements follow recent speculation by British media that Amazon might be interested in acquiring Ocado to make a major move into the fast-growing online grocery deliveries market.
Ocado, which makes a small profit, handles about 195,000 orders a week with an average order value of £111, and generated revenues of £1.2 billion in the year ending November 2015. It claims to deliver 95.3% of orders on time or earlier.
