Ocado warns Morrisons cannot launch rival online service

Ocado has warned that Morrisons would be unable to start its own internet operation because it was tied to a 25-year deal to sell food online through Ocado’s online service, reports The Guardian.

Reporting solid trading for the third quarter, Duncan Tatton-Brown, Ocado’s finance director, said: “Ocado is the exclusive provider of online grocery services for Morrisons. That is the terms of the deal for the remaining 23 years. The contract will prevent [Morrisons launching another service.

“If [Morrisons] want coverage elsewhere in the UK they have to come through us. We are happy to have that discussion. The decision is theirs. Who provides it is us.”

Morrisons signed the deal with Ocado in a bid to catch up with its rivals’ online operations but the supermarket group is now under new management. Morrisons’ new chief executive David Potts has sold the M convenience shops opened by his predecessor, Dalton Philips, and is focusing on reviving Morrisons’ larger stores.

Ocado has been saying since it signed the Morrisons deal it would sign similar agreements with retailers outside the UK to use its technology for online sales. It has given itself until the end of this year to announce a second tie-up and Tatton-Brown said he expected to achieve that goal.

He said the company continued to talk to several potential partners.

In the 12 weeks to 9 August, Ocado’s retail sales rose 15.3 per cent to £252m from a year earlier with average orders each week up 16.6 per cent to 190,000.

The average order size fell 1.1 per cent to £110.46 because of price competition, Tatton-Brown said, adding that the squeeze was slightly less severe than in the first half of the year.

Ocado sells mainly Waitrose products but the two companies have competed for online sales in the south-east of England since 2011. The companies’ 10-year supply contract has a break clause in 2017 and the start of this month was the deadline for the earliest termination of the contract.

Tatton-Brown said: “We would expect to work with Waitrose for some time to come.”