Morrisons inks grocery supply deal with Amazon

The London-listed supermarket retailer will provide a wholesale supply service to Amazon – which launched its Pantry grocery service in the UK last year - allowing its customers to access to a wide range of Morrisons ambient, fresh and frozen products.

Chief executive David Potts said: "Today's agreement is built on Morrisons’ unique strengths as a food maker. 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.”

In addition, Morrisons said it has been in talks with Ocado to grow Morrisons.com and an agreement in principle has been reached.

The agreement involves Morrisons taking space in Ocado's new South London customer fulfilment centre in Erith, and Ocado delivering a store pick solution for Morrisons that uses Ocado's technology and Morrisons store assets.

This would enable Morrisons.com, working with Ocado, to sell to customers all over Great Britain.

Morrisons said the agreement was subject to detailed terms being agreed and will only proceed if it allows the company to achieve profitable growth online. It added there is no certainty an agreement will be concluded.

John Ibbotson, of industry consultants Retail Vision, said the Amazon deal had granted the struggling grocer "an 11th hour reprieve".

"I'm sure there have been many sighs of relief at Morrisons HQ, which has been papering over the cracks for some time," he said. "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."

As for the rest of the industry, Ibbotson said it was 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."

At 0825 GMT, Morrisons shares were up 4.5% tp 196.40p.