Morrisons Suspends Its Digital Partnership With Ocado

In an announcement to the market, WM Morrison Supermarkets PLC (MRW) revealed that it had agreed to temporarily suspend using its proportion of capacity at Ocado PLC’s Erith warehouse, in Kent, after a fire broke out at one of its centres. This will allow Ocado to be the sole user of the Erith customer fulfilment centre (CFC) until January 2021, enabling extra capacity for the company following the recent fire at the new Andover CFC. Ocado, which currently delivers online groceries of Morrisons, will no longer be its “exclusive digital partner”. Last month, Ocado had reported that a robot which caught fire due to an electrical fault in a battery had led to a huge blaze which destroyed its major distribution centre in Andover. Ocado’s renewed agreement with Morrisons will now provide it with more space to fulfil orders for the online grocer’s own customers. According to the agreement, Morrisons will return to the Erith CFC in February 2021, and, until that time, it will continue to deliver online orders using the technology offered by Ocado and goods from its own stores. During the intervening period, Morrisons will not incur either the start-up or running costs of the new Erith CFC, and will still be able to grow for customers, both by completing orders through the Dordon CFC and accelerating new store pick capacity. In addition, Morrisons’ exclusive digital relationship with Ocado, sealed in 2013, will be ended, thereby potentially enabling more strategic flexibility, other significant opportunities, and more profitable growth for the company. The company’s Chief Executive Officer, David Potts, said the new agreement would allow it to have multiple online partners, enabling them to seek partnerships in a critical growth area for the group. It will also enable the company to sell directly online through other platforms and will free the group to deepen its relationship with Amazon marketplace and Deliveroo. The UK’s fourth-largest supermarket can now use other partners to deliver orders from Morrisons.com. Ocado, which had been blocked from delivering for other competitors of Morrisons, will also gain more freedom to work with other companies over several years. However, Ocado is currently focusing on a new partnership with Marks & Spencer, which is scheduled to kick off next year and is not expected to set up deliveries with another major supermarket any time soon. Mr Potts described its new deal with Ocado as a win-win for both companies and informed online sales growth is anticipated to be affected in the short term, but the management was working to cushion the blow. Separately, the company in its first-quarter trading statement reported like-for-like retail sales growth of 0.2 per cent, missing analyst expectations of a 0.5 per cent rise, while like-for-like sales, excluding fuel, also fell behind an analyst consensus compiled by the company. Group sales rose by 2.3 per cent compared to an expected rate of 2.5 per cent. The company said consumer confidence was getting impacted by political and economic uncertainty. It also warned of a competitive and challenging market. Share Price Commentary  Daily Chart as at May-10-19, before the market closed (Source: Thomson Reuters)  On 10^th May 2019, at the time of writing (before the market closed, GMT 09:00 am), MRW shares were trading at GBX 213.50, up by 0.85 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 270.50/GBX 209.20. The company’s stock beta was 0.72, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £5.16 billion with a dividend yield of 3.06 per cent.