Morrisons To Sell Food Online With Ocado Help

Morrisons has reached agreement with online grocer Ocado to launch its own food offering over the web from January 2014.

The two companies, which confirmed the 25-year deal after months of talks, saw their market value grow - Ocado's by 47% - in early share trading.

It is controversial because Ocado is already linked with Waitrose, exclusively delivering the supermarket's products, but it will see Morrisons enter the online food market following criticism it was too slow to react to changing shopping habits.

Morrisons' lack of an online food service and local convenience stores has put it at a disadvantage against the likes of Tesco, Asda and Sainsbury's.

It said its grocery website would have a clear "Morrisons look and feel" and deliveries would be made by a fleet of its own vehicles.

Orders will be processed at Ocado's recently opened Dordon Customer Fulfilment Centre in Warwickshire.

Under the deal, Morrisons will make an initial capital payment of £170m to acquire Dordon and associated mechanical handling equipment, as well as a licence and integration fee.

It said a further £46m pounds would be invested to expand Dordon.

The deal will comprise a technology and services arrangement and a sale and leaseback of property and equipment at Dordon.

Morrisons has forecast that the online business will be earnings positive by 2016/17.

Chief executive Dalton Philips said: "I'm confident that will grow over time to be an operation of real scale and significance whilst creating meaningful long-term value for Morrisons shareholders."

Ocado said the agreement would not affect its own operations and have no impact on its current contract with Waitrose, which had voiced concern that any deal with its supermarket rival would be a conflict of interest.

Ocado chief executive Tim Steiner said: "We see Morrisons' decision to adopt our model to drive its online launch as a further endorsement of our technological and logistical excellence.

"This validation should support the internationalisation or our model as well as the growth of our UK business by increased market use of our operating model, enhancing capital efficiency and improving returns."

On the potential for a row with Waitrose he continued: "We will continue to source products under our long term agreement with Waitrose and our customers will continue to benefit from the existing high levels of service, wide range of products and competitive prices that they currently enjoy."