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Morrisons agrees new terms with Ocado

Published 10 August 2016

Morrisons has finalised an agreement with Ocado that will enable Morrisons.com to grow profitably across Britain, utilising Ocado's best-in-class technology.

The new agreement builds on the success of the Morrisons/Ocado relationship.

Morrisons has re-negotiated some components of the original contract with Ocado.  The principal changes are: the restriction on store pick has been lifted, the profit share agreement will be cancelled and the Research & Development (R&D) fee will be reduced.

As previously announced, Morrisons has agreed to take capacity in Ocado's new Customer Fulfilment Centre ("CFC") in Erith. This will allow millions more customers to shop with Morrisons.com. This arrangement has significantly lower upfront capital costs than the original operating agreement and includes an option to break after five years.

Ocado will develop a store pick solution for Morrisons.com. Prior restrictions will be lifted, enabling Morrisons to fulfill online orders via store pick anywhere in Britain, 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 R&D fee.

In parallel we are also increasing our range. Morrisons.com will sell thousands of non-food items, currently available via Ocado, giving customers more access to many well-known brands.

Our aim has always been to achieve profitable growth online. The extension of our online offer nationwide, through our 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 CFC.

In future, we expect the annual Morrisons.com EBIT loss to continue to reduce each year and to be a key component of the £50m-£100m incremental profit opportunity we announced at our preliminary results in March 2016. Our capital expenditure guidance of c.£450m for 2016/17 and a sustainable range of £400m-£450m per annum in future years is unchanged.

Morrisons CEO David Potts 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."

Source: Company Press Release