Amazon-Morrisons deal heaps pressure on Ocado, revives potential takeover talk

Shares in the online grocery retailer Ocado plummeted eight percent as it emerged British supermarket Morrisons signed a distribution deal to deliver fresh produce for Amazon.

As well as placing further strain on the UK logistics business – which has arguably failed to meet high expectations since launching in 2000 – today’s announcement has also revived speculation Amazon could be set to acquire Ocado’s vaunted technology platform. See also:Outsourcing automation: how Ocado plans to transform the logistics landscape

Amazon was said to be exploring a partnership in groceries for the UK earlier this year, leading to rumours of a possible acquisition – with Ocado tipped as a prime contender.

“With Ocado still yet to announce a technology partnership with another retailer, [the Amazon-Morrisons partnership] will likely heap further pressure on its management, adding heat to ongoing rumours of a takeover by Amazon itself,” says Verdict analyst George Scott.

According to Scott, the move to partner with Amazon, which will see the supermarket chain supply produce for Amazon Pantry and Amazon Prime Now, could signify “limitations” to Morrisons' relationship with Ocado.

“This will open the eyes of other supermarkets, including the discounters, to the possibility of launching online via a partnership with Amazon rather than Ocado," he says.

Principal analyst for ebusiness and channel strategy at Forrester, Sucharita Mulpuru, says that the announcement amounts to an “unusual relationship” for Amazon and that it’s possible the “price wasn’t right” for acquisition talks.

Speaking with Computerworld UK, Mulpuru says that Amazon generally builds its own efforts and rarely partners with others.

“For Amazon to partner with the number four in a market is even more unusual,” Mulpuru says. “Amazon tends to be acquisitive and it would be a page from their playbook to have acquired Ocado – but who knows, maybe the price wasn’t right or there were other issues at play.”

PlanetRetail analyst David Gray tells Computerworld UK the partnership could be Amazon testing the waters. It’s a fairly low commitment contract for both parties, and Amazon may well be sounding out how receptive the British market is to its Amazon as a grocery retailer.

Gray says Morrisons, under the command of David Potts, is returning the supermarket chain to its roots as a big-box traditional supermarket retailer. He also says that during a recent earnings call, Ocado was keen to play down talk of an Amazon takeover.

Morrisons will share capacity of a new Ocado distribution centre in Erith, South London.

Although under the old leadership Morrisons signed a 20-year deal with Ocado, today the supermarket said the “amended agreement is subject to detailed terms being agreed, and will only proceed if it enables Morrisons to achieve profitable growth online.

“There can be no certainty that an agreement will be concluded.”

Verdict's George Scott says this agreement is a savvy move to make the most of the existing deal, by “helping expand its reach geographically as well as tap into click & collect fulfilment, which is a vital battleground in the UK food and grocery market.”

Copyright © 2016 IDG Communications, Inc.

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