Ocado shareholders fled to the checkout yesterday after its partner Morrisons revealed it had inked a major deal with Amazon, signing a ground-breaking agreement that will pave the way for the US giant to ramp up its presence in the UK grocery market.
The tie-up, which is set to go live in the coming months, will see Amazon sell hundreds of Morrisons’ fresh, chilled and frozen products via its Prime Now and Pantry Services. Shares in Morrisons rose nearly six per cent, but Ocado fell nearly eight per cent and Tesco two per cent on the news that Britain’s battered supermarkets will face a fresh assault on top of their current battle with German discounters Aldi and Lidl.
“We won’t know if they just opened the gate for barbarians to storm in just yet,” Bernstein retail analyst Bruno Monteyne said.
“Having a credible fresh food supply in the UK will allow Amazon to build scale and expertise and really make an impact on the UK food retail market,” he added.
“Tesco could soon be about to find out what it’s like to be David rather than Goliath,” said Retail Vision consultant John Ibbotson.
Morrisons will continue to operate its own online grocery business in partnership with Ocado. However, the supermarket also revealed that it will be making changes to the original 25-year deal signed three years ago for £216m. Under the new arrangement, Morrisons will take space in a customer fulfilment centre currently being built in Erith, south east London.
Meanwhile, Ocado will provide Morrisons with software to be able to pick orders directly from stores in areas that are too far away from its warehouses. Ocado chief executive Tim Steiner described the deal as a “win-win” for both sides. However, a drop in its share price suggests investors thought otherwise.
But Verdict Retail analyst George Scott said the Morrisons tie-up with Amazon implies “there may be limitations to its relationship” with Ocado.
“This will open the eyes of other supermarkets, including the discounters, to the possibility of launching online via a partnership with Amazon rather than Ocado,” he said.
Monteyne added that it could undermine Ocado’s credibility and its ability to negotiate deals with other players in the future. The company has repeatedly insisted that a deal with an international partner was imminent, however, a tie-up has yet to materialise.