ES in internet grocer Ocado slumped as much as eight per cent yesterday on fears that relations with key supplier Waitrose could sour.
The fall wiped out some of the 32 per cent increase in Ocado stock this month, when investors bought into the prospect of the retailer making a deal with Morrisons as the latter tries to set up its own online shopping outlet.
But in recent days executives at Waitrose, which has a supply deal with Ocado that runs until 2020, have warned that the proposal could fall foul of their existing agreement.
Waitrose managing director Mark Price said at the weekend that he “would never knowingly sign a contract with Ocado that agreed to them working with another retail competitor”.
Ocado has consulted its legal advisers at Slaughter & May and a barrister throughout its talks with Morrisons and remains confident that it can assist Morrisons without stepping on Waitrose’s toes.
Morrisons and Ocado first revealed their talks in March, and neither the extent nor the details of any potential deal have been made public yet.
But some analysts raised concerns yesterday that Ocado is “playing with fire” by getting close to a rival supermarket.
“Ocado may have irreparably polluted a commercial relationship upon which it is dependent and it must lead to a greater chance of a break in 2017 in our view,” said Shore Capital analyst Clive Black, who estimates that Ocado would lose up to 80 per cent of its sales if it lost Waitrose as a supplier.
Ocado has worked with Waitrose since 2002, shortly after it was set up by three former Goldman Sachs bankers.
The two retailers renewed their agreement in 2010 ahead of Ocado’s float, with a deal until 2020 containing a break clause in 2017.
Shares in Ocado recovered some of their early losses to close 6.5 per cent lower yesterday.