Morrisons agrees new terms for Ocado home delivery deal
The supermarket has re-negotiated some components of its original contract with Ocado with the main changes including the lifting of the restriction on store pick, the cancellation of the profit share agreement, and a reduction in the research and development fee that Morrisons pays to Ocado.
As previously announced, Morrisons has agreed to take capacity in Ocado's new customer fulfilment centre in Erith to allow “millions” more customers to shop online with the supermarket. Morrisons said the arrangement has significantly lower upfront capital costs than the original operating agreement and includes an option to break after five years.
Meanwhile, Ocado will develop a store pick solution for Morrisons.com which will enable the supermarket to fulfil online orders via store pick anywhere in the UK, including all areas not currently covered by Morrisons.com. Once the store pick model becomes operational, Morrisons’ contractual obligation to share a proportion of its future online profits with Ocado will end. At this point the exclusivity restrictions on Ocado will also be reduced, although it will still be prohibited from serving certain grocery retailers.
Once Morrisons.com is operational from Erith, Morrisons will pay Ocado a reduced annual research and development fee.
The supermarket will also increase its range on Morrisons.com by selling thousands of non-food items currently available via Ocado.
Morrisons said the extension of its online offer nationwide, through its investments in Erith and store pick, means that the break-even point for Morrisons.com will be slightly later than originally planned when the business operated solely from the Dordon customer fulfilment centre.
The supermarket expects the annual Morrisons.com EBIT loss to continue to reduce each year and to be a key component of the £50 million to £100 million incremental profit opportunity it announced at its preliminary results in March. Its capital expenditure guidance of circa £450 million for 2016/17 and a range of £400 million to £450 million per annum in future years is unchanged.
David Potts, Morrisons chief executive, said: "The new investments in online growth are further examples of Morrisons building a broader business and will allow millions more customers all over Britain to enjoy Morrisons good quality fresh food and great value for money. As food maker and shopkeeper, we continue to 'follow the customer' and move towards achieving capital light, profitable growth online."
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