Morrisons gets a discount on new deal with Ocado

 
Caitlin Morrison
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Morrisons will soon be delivering to even more areas in the UK (Source: Getty)

Morrisons and Ocado have struck a new deal that will see the supermarket deliver to more areas in Britain, and also reduces the fees Morrisons has to pay the online grocer.

Shares in both grocers rose on the news, with Morrisons up 1.5 per cent at 190.9p in early trading, while Ocado rose 2.6 per cent to 283.5p.

According to Morrisons, the principal changes to its contract with Ocado are: the restriction on store pick has been lifted, the profit share agreement will be cancelled and the research & development (R&D) fee will be reduced.

Morrisons is taking capacity in Ocado's new warehouse in Erith, which it said will allow "millions more customers to shop with Morrisons.com". The supermarket said this arrangement has significantly lower upfront capital costs than the original operating agreement.

Meanwhile, Ocado is to develop a store pick solution for Morrisons.com. Prior restrictions will be lifted, enabling Morrisons to fulfil online orders via store pick anywhere in Britain, including all areas the company does not currently cover.

Read more: Why Amazon could be an Ocado-killer in one chart

Once the store pick model becomes operational, Morrisons contractual obligation to share a proportion of its future online profits with Ocado will end. At this point the 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," said Morrisons chief executive David Potts.

"As food maker and shopkeeper, we continue to 'follow the customer' and move towards achieving capital light, profitable growth online."

Morrisons was advised on the new agreement by law firm Ashurst.

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