Amazon.com Inc. stepped up its incursion into the UK grocery market, signing a deal to sell hundreds of products supplied by Wm Morrison Supermarkets Plc.
The agreement is the first of its kind in the UK by the world’s largest e-commerce company and adds pressure on an already crowded industry. Morrison also said Monday that it’s in talks to extend its partnership with Ocado Group Plc, whose shares fell on concerns of increased competition from the American online retailer, which sells 150 million items from its UK website.
By partnering with the Bradford, England-based grocer, Amazon is stepping up its advance on a market already grappling with higher minimum wages and a price war spurred by the expansion of discounters. Such headwinds may lead retailers to cut as many as 900,000 jobs over the next decade, the British Retail Consortium said Monday in a report. Shares of Tesco Plc and J Sainsbury Plc declined in London, while Morrison’s stock rose.
"The advance of Amazon as a participant in U.K. grocery is a potential challenge to the whole trade in time," Clive Black, an analyst at Shore Capital, said in a note. "For Ocado, the Amazon contract enhances a pure-play challenge."
The US company started its Pantry service in Britain late last year, offering more than 4,000 everyday essential items from beer to pet food. Under the agreement with the UK supermarket, Amazon will offer selected Morrison goods through its Prime Now and Pantry services in coming months. Amazon customers will have access to a range of Morrison’s ambient, fresh and frozen products, according to the statement.
Ocado Slides
"The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling," Morrison Chief Executive Officer David Potts said in the statement. "This is a low-risk and capital-light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business."
Morrison shares rose as much as 6.8 per cent in London and were up 4.8 per cent at 196.3 pence as of 8:52 am Ocado slid 6.7 per cent to 263.4 pence, Tesco declined 3.3 per cent, while Sainsbury eased 0.8 per cent.
Separately, Morrison and Ocado have reached agreement in principle for the supermarket company to share some of the capacity at an Ocado warehouse being built in Erith, southeast London. The facility is due to open at the end of 2017. Ocado will also provide Morrison with software to fulfill online orders from its stores. The companies first teamed up in 2013.
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