Ocado and Morrisons strengthen grocery delivery deal

Shares in Morrisons and Ocado rose over 1% and 3% respectively early on Tuesday (9 August), after the two companies unveiled plans to strengthen their grocery delivery relationship.

The FTSE 100-listed supermarket and the online grocery delivery service said the former will take capacity at an Ocado warehouse, which is currently being build in Erith, a district of the London Borough of Bexley in south-east London.

The facility, which will be completed in 2018, is forecast to process approximately over 200,000 online orders a week and the deal is expected to boost Morrison's chances to compete more aggressively for home delivery customers.

The two companies first signed partnership agreement three years ago, which saw Ocado providing technology and distribution services to allow Morrisons to launch its online food business, Morrisons.com.

On Tuesday, the supermarket said Ocado will develop a store pick solution for Morrisons.com, and prior restrictions will be lifted to enable Morrisons to fulfill online orders via store pick anywhere in Britain, including all areas not currently covered by its delivery service.

Once the store pick model becomes operational, Morrisons contractual obligation to share a proportion of its future online profits with Ocado will end. "The new investments in online growth are further examples of Morrisons building a broader business said Morrisons chief executive David Potts.

Ocado chief executive Tim Steiner said he was "delighted" by the deal, which will provide Morrisons with additional capacity for online growth. "We see this agreement as a further endorsement of the strength and attractiveness of our capabilities that we can provide to our existing UK partner, and for retail partners globally," he said.