Morrisons have announced a deal with Ocado to offer online grocery deliveries by January 2014.
Deliveries will be made from Ocado's recently opened Customer Fulfilment Centre (CFC) in Dordon, with orders delivered using a fleet of Morrisons-branded vans. Morrisons will make an initial payment of £170 million to Ocado to acquire its stake in the Midlands centre, along with a further £46 million to expand the site and establish the delivery network.
Morrisons will also pay an annual fee for service costs and R&D expenditure.
Speaking this morning on BBC Radio 4's 'Today' program, Dalton Philips, Morrisons chief executive, said, "This is a very good transaction for both parties. We're going from a standing start to the fast lane in the blink of an eye." He stated that the retailer expects a return on its outlay within three to four years.
Ocado's share price surged by 42% this morning on news of the deal, pushing the company's market valuation to almost £1.2 billion.
Commenting on the deal, Philips said, "This agreement is a significant strategic step for Morrisons. From a standing start, Morrisons will be competing in the fast growing online channel by the end of this year with a really compelling proposition.The customer gets our affordable fresh food delivered by Ocado’s state of the art distribution system. I’m confident that Morrisons.com will grow over time to be an operation of real scale and significance whilst creating meaningful long-term value for Morrisons shareholders."
Ocado chief executive Tim Steiner said, "We see Morrisons' decision to adopt our model to drive its online launch as a further endorsement of our technological and logistical excellence. This validation should support the internationalisation of our model as well as the growth of our UK business by increased market use of our operating model, enhancing capital efficiency and improving returns."
Steiner was adamant that the Morrisons deal would not impact Ocado's existing partnership with Waitrose, stating, "Our customers will see no change to the service they receive from Ocado as a result of this agreement. We will continue to source products under our long term agreement with Waitrose, and our customers will continue to benefit from the existing high levels of service, wide range of products and competitive prices that they currently enjoy."
