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| Ocado tie-up to help Morrisons start selling groceries online | Ocado tie-up to help Morrisons start selling groceries online |
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| A major spat is brewing among the grocers after Ocado signed a 25-year deal with Morrisons supermarket, enraging its long-term partner Waitrose. | A major spat is brewing among the grocers after Ocado signed a 25-year deal with Morrisons supermarket, enraging its long-term partner Waitrose. |
| Waitrose has demanded to see details of the distribution deal, which will allow Morrisons to start grocery deliveries by next January. It has instructed lawyers to examine its existing contract with Ocado to find out whether the company has breached its terms. | Waitrose has demanded to see details of the distribution deal, which will allow Morrisons to start grocery deliveries by next January. It has instructed lawyers to examine its existing contract with Ocado to find out whether the company has breached its terms. |
| A spokesman for the high-class supermarket said: "What we have to decide is whether Ocado is introducing a competitor into the marketplace." | A spokesman for the high-class supermarket said: "What we have to decide is whether Ocado is introducing a competitor into the marketplace." |
| Ocado chief executive Tim Steiner said he had not heard from Waitrose's lawyers. "This is 100% within the terms of our contract [with Waitrose]. We have a sourcing agreement that we will buy [from Waitrose] products we sell to Ocado.com customers and we will not offer for sale own-label products of another [UK] supermarket." The agreement with Morrisons does not conflict with those terms, he said. | Ocado chief executive Tim Steiner said he had not heard from Waitrose's lawyers. "This is 100% within the terms of our contract [with Waitrose]. We have a sourcing agreement that we will buy [from Waitrose] products we sell to Ocado.com customers and we will not offer for sale own-label products of another [UK] supermarket." The agreement with Morrisons does not conflict with those terms, he said. |
| The Bradford-based grocer will use Ocado's technology and distribution network but retain its own branding for online deliveries. Morrisons' chief executive, Dalton Philips, said: "This is a Morrisons website, it's Morrisons food in a Morrisons van with a Morrisons driver; it's Morrisons the whole way through. [Ocado] are simply providing the technology and the platform." | The Bradford-based grocer will use Ocado's technology and distribution network but retain its own branding for online deliveries. Morrisons' chief executive, Dalton Philips, said: "This is a Morrisons website, it's Morrisons food in a Morrisons van with a Morrisons driver; it's Morrisons the whole way through. [Ocado] are simply providing the technology and the platform." |
| Morrisons has blamed its lack of an online operation for a slump in sales and Philips said the deal would propel it "into the fast lane" of the rapidly expanding market for online grocery shopping. Shares in the supermarket chain rose 1.2% on the news. | Morrisons has blamed its lack of an online operation for a slump in sales and Philips said the deal would propel it "into the fast lane" of the rapidly expanding market for online grocery shopping. Shares in the supermarket chain rose 1.2% on the news. |
| But it was Ocado that was the real winner in the stock market on Friday. Its shares rose by as much as 50% in early trade, dropping back later but still 29% higher on the day. Investors were applauding the fact Ocado had found a new revenue stream, as its partnership with Waitrose grows increasingly unstable. | But it was Ocado that was the real winner in the stock market on Friday. Its shares rose by as much as 50% in early trade, dropping back later but still 29% higher on the day. Investors were applauding the fact Ocado had found a new revenue stream, as its partnership with Waitrose grows increasingly unstable. |
| Ocado mostly sells Waitrose food, although it has been adding products from foreign supermarkets to its range since 2011. Waitrose helped Ocado launch in 2001 with a cash injection of £46m, leaving it with a 40% stake in the business, the last of which it sold in 2011. The pair's current 10-year supply contract lasts until 2020, with a break clause in 2017. | Ocado mostly sells Waitrose food, although it has been adding products from foreign supermarkets to its range since 2011. Waitrose helped Ocado launch in 2001 with a cash injection of £46m, leaving it with a 40% stake in the business, the last of which it sold in 2011. The pair's current 10-year supply contract lasts until 2020, with a break clause in 2017. |
| But Waitrose has expanded its own direct delivery service in recent years, causing analysts to question Ocado's long-term business model. The high-class supermarket announced on Friday that it would open a second "dark store" in London to meet the growing demand for Waitrose.com. | But Waitrose has expanded its own direct delivery service in recent years, causing analysts to question Ocado's long-term business model. The high-class supermarket announced on Friday that it would open a second "dark store" in London to meet the growing demand for Waitrose.com. |
| Ocado said it would continue to sell Waitrose products via Ocado.com and that customers would see no change in the service they received. Chief executive Steiner insisted Waitrose would benefit from the deal because Morrisons' investment would allow Ocado to improve its technology and grow faster. | Ocado said it would continue to sell Waitrose products via Ocado.com and that customers would see no change in the service they received. Chief executive Steiner insisted Waitrose would benefit from the deal because Morrisons' investment would allow Ocado to improve its technology and grow faster. |
| He said it could lead to other arrangements to license its technology to foreign supermarkets and non-food stores in the UK. "We've talked to a lot of people but no conversations are anywhere near as advanced as what we've reached with Morrisons." Under the terms of the Morrisons deal, Ocado can only provide technology to one other UK grocer – which would currently be its own online business – but foreign competitors are not barred. | He said it could lead to other arrangements to license its technology to foreign supermarkets and non-food stores in the UK. "We've talked to a lot of people but no conversations are anywhere near as advanced as what we've reached with Morrisons." Under the terms of the Morrisons deal, Ocado can only provide technology to one other UK grocer – which would currently be its own online business – but foreign competitors are not barred. |
| Ocado's chairman, Lord Grade, said at the company's annual meeting last week: "The intellectual property of the business, we believe, is going to be very, very valuable and how we exploit that in the future domestically and internationally is very much a matter for the board in due course." | Ocado's chairman, Lord Grade, said at the company's annual meeting last week: "The intellectual property of the business, we believe, is going to be very, very valuable and how we exploit that in the future domestically and internationally is very much a matter for the board in due course." |
| Morrisons will pay £170m to buy Ocado's second warehouse, at Dordon, Warwickshire. It will also invest £46m to expand the facility, which it will lease back to Ocado. It will pay 1% of sales from Morrisons.com to Ocado, plus 25% of any cash profits generated by the website, which declines to 10% after 15 years. It expects the online operation to start making money from 2017/18. | Morrisons will pay £170m to buy Ocado's second warehouse, at Dordon, Warwickshire. It will also invest £46m to expand the facility, which it will lease back to Ocado. It will pay 1% of sales from Morrisons.com to Ocado, plus 25% of any cash profits generated by the website, which declines to 10% after 15 years. It expects the online operation to start making money from 2017/18. |
| There are a series of other fees, including £30m to license Ocado's technology, plus contributions towards the group's research and development costs. Morrisons said the operation will create 3,000 jobs when it is using its full share of capacity at the Ocado warehouse, which it expects to do in three to four years time. | There are a series of other fees, including £30m to license Ocado's technology, plus contributions towards the group's research and development costs. Morrisons said the operation will create 3,000 jobs when it is using its full share of capacity at the Ocado warehouse, which it expects to do in three to four years time. |
| Ocado shares jumped to 260p, while Morrisons ticked up to 286p. Philip Dorgan, analyst at City broker Panmure Gordon, said it was not a good deal for Morrisons: "While it achieves the objective of getting online, it comes at a big cost. In particular, signing a 25-year deal in an online world with an unprofitable, unproven operator looks likely to cause problems." | Ocado shares jumped to 260p, while Morrisons ticked up to 286p. Philip Dorgan, analyst at City broker Panmure Gordon, said it was not a good deal for Morrisons: "While it achieves the objective of getting online, it comes at a big cost. In particular, signing a 25-year deal in an online world with an unprofitable, unproven operator looks likely to cause problems." |
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