Morrisons agrees deal with Ocado

17 May 2013 Last updated at 16:32 GMT Morrison's boss Dalton Philips said the Ocado deal signifies a 'clear path to profitability'

Morrisons, the UK's fourth largest supermarket chain, is going into business with internet grocer Ocado.

Morrisons says it has agreed a deal that will enable it to launch an online grocery service by January 2014.

The delivery vans will carry the Morrisons brand, with logistical support by Ocado from its Dordon distribution centre in the Midlands.

At the moment, Morrisons is the only one of the big four chains not to offer online shopping.

Continue reading the main story The total food and grocery market is forecast to grow 22% from £127bn to £155bn by 2017Online food sales are expected to grow by nearly 70% over the same period, from £5.9bn to £10bn As a proportion of the total, online is set to grow from 4.66% to 6.47%Nearly 30% of people in the UK now shop online for food and groceries

Source: Conlumino

Chief executive Dalton Philips told BBC Radio 4's Today programme: "This is a very good transaction for both parties. We're going from a standing start to the fast lane in the blink of an eye."

Morrisons will make an initial payment of £170m to Ocado to acquire the Dordon centre, then a further £46m to expand it and establish a delivery network.

Morrisons expects a return on its investment within three or four years, Mr Philips said.

Neil Saunders, retail analyst with Conlumino, told the BBC: "This is a transforming deal for Morrisons that will allow them to make the move online in an efficient and effective way that is easily scalable. In many ways, it's the best possible solution for them.

"It is a good deal for Ocado, too, in that it broadens its business model and provides it with an injection of capital for future investment. The unknown in the mix is the reaction of Waitrose."

Waitrose worry

Ocado said its current contractual agreement with Waitrose would "remain unaffected by these arrangements" and that customers would experience "no change to the service" as a result of the deal.

Continue reading the main story It maintained that there was no exclusivity clause in the Waitrose agreement preventing it from offering services to rival supermarkets.

Ocado said it would continue to deliver Waitrose food from the Dordon centre.

But in a statement Waitrose said: "We have asked to see the detail of the deal and the operating arrangements. Meanwhile, we have instructed lawyers so that we can get a clear and unequivocal view of the contract and examine what might constitute a breach."

In the Morrisons agreement there is a "restrictive covenant" preventing Ocado from providing a similar online grocery service to more than one competitor to Morrisons at any one time.

Waitrose signed a deal with Ocado in 2000 and now serves up to 40,000 online shoppers a week.

Ocado's shares closed 36% higher. Its shares have risen 149% over the past year.

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