Ocado shares hit by Morrisons' new tie-up with Amazon

Ocado saw its shares drop after Morrisons announced a one-hour delivery service with Amazon. Picture: ContributedOcado saw its shares drop after Morrisons announced a one-hour delivery service with Amazon. Picture: Contributed
Ocado saw its shares drop after Morrisons announced a one-hour delivery service with Amazon. Picture: Contributed

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Shares in online grocer Ocado were battered yesterday after supermarket Morrisons took the wraps off a new one-hour delivery service through its existing partnership with online retail giant Amazon.

Ocado, which has a separate joint venture with Morrisons to deliver orders from the supermarket’s website, saw its shares close down 8.5 per cent at 258.2p as the development was seen as competition sharpening in online retailing in an already cut-throat supermarket sector.

The latest move by Morrisons will enable customers to order a full Morrisons shop online via the Amazon Prime app, with the choice of paying £6.99 for a one-hour delivery or taking a two-hour delivery slot for free.

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While the service will only be available in certain areas of London and Hertfordshire, Morrisons said it could help boost profits by between £50 million and £100m. The group has about 60 stores in Scotland.

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David Potts, Morrisons’ chief executive, said it was a low-cost move that will attract more customers. “As food maker and shopkeeper, we have unique skills to help build a broader new Morrisons through capital light growth,” Potts said.

“Morrisons at Amazon is another exciting joint opportunity and makes Morrisons… products available to even more customers.”

Neil Wilson, markets analyst at ETX Capital, said the move was “pure profit” for Morrisons and another “feather in the cap” for its chief executive in his efforts to turn the retailer around since replacing his ousted predecessor, Dalton Philips, in March 2015.

“This is a big money-spinner for Morrisons and gives it a massive edge over Tesco and Sainsbury in the home delivery market,” Wilson said.

“With prices being slashed and competition fierce, this is the kind of deal that will make a big difference to the bottom line. Morrisons stock has surged this year as a result of the efforts to strip out negative like-for-like sales and lowering costs. (It) has just delivered four straight quarters of sales growth – this form looks set to continue.”

Amazon announced a deal with Morrisons in February to sell hundreds of its products through its food delivery service Amazon Pantry and its subscriber service Amazon Prime Now.

The US retail giant later revealed a fresh food delivery service – AmazonFresh – in June, giving customers the chance to order their full weekly grocery shop including fresh fruit and vegetables, meat, seafood and dairy products.

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Ocado rubber-stamped a deal with Morrisons in August to expand the supermarket’s home delivery service. However, shares in the online grocer have plummeted around 22 per cent in the last year as investors grow increasingly impatient over a long-awaited overseas deal.

The blow to its stock price comes despite the FTSE 250 firm notching up its best rise in sales volumes for five years when it unveiled third-quarter results in September. It saw Ocado post a 15.4 per cent rise in gross sales to £314m in its third quarter to 7 August, with retail sales up 13.6 per cent at £286.4m.