Further pressure on big chains
Morrisons gives Amazon foothold in UK groceries
The move takes Amazon more significantly into the UK grocery market and will add further pressure on all those in the sector.
Morrisons chief executive David Potts said: “The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling.
“This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business. We look forward to working with Amazon to develop and grow this partnership over the coming months.”
In addition, Morrisons has reached an agreement in principle with Ocado to grow Morrison.com and an agreement in principle has been reached.
This involves Morrisons taking space in Ocado’s new Customer Fulfilment Centre and Ocado delivering a store pick solution for Morrisons that leverages Ocado’s technology and Morrisons store assets.
This would enable Morrisons.com to sell to customers across Britain. This amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrisons to achieve profitable growth online. It said there can be no certainty that an agreement will be concluded.
Morrisons’ shares jumped in early trading.
AJ Bell investment director Russ Mould said: “Morrisons has been a slow starter in the online arena and currently has a very modest foothold in the market. The tie-up with Amazon to supply products to its Amazon Prime Now and Amazon Pantry customers will be a shot across the bows for current market leader, Tesco.”
John Ibbotson of the retail consultants, Retail Vision, said: “With the Amazon deal, the struggling grocer Morrisons has been granted an 11th hour reprieve.
“It’s now game on for the rest of the Big Four, who suddenly don’t look so big after all. Tesco could soon be about to find out what it’s like to be David rather than Goliath.
“The problem for the Big Four is that if you pay £79 a year for Amazon Prime, you get the delivery free. Amazon seems content to deliver at a loss indefinitely.
“By contrast, it costs the Big Four approximately £20 to make a food grocery delivery, for which they can only charge up to £5.
“For the Big Four, deliveries have just become permanently loss-making. The ramifications of this for the grocery sector are huge.
“The only winner is the consumer. The Big Four are fighting back with Click and Collect, but who will want that if Amazon delivers to your door in one hour?
“I’m sure there have been many sighs of relief at Morrisons HQ, which has been papering over the cracks for some time.
“This deal is the final link in the chain for Amazon to launch Amazon Pantry and take on the Big Four by delivering a full grocery offer including fresh and frozen food.
“At least there will be no more rumours that Amazon will buy Ocado, as they now don’t need them.”