UK grocer Morrisons, following on from its 0.2 per cent festive like-for-like sales increase, has announced some promising new fulfillment partnerships that will help it broaden its reach and improve its prospects.
It’s the latest step in CEO David Potts bid to turn around the previously ailing retailer.
The initial announcement is a principal agreement with Ocado, whom it has partnered with since 2013, to share capacity of the e-tailer’s customer fulfillment centre in Erith, South London which is due to open in 2017. The tie-up also set to see Ocado provide Morrisons with the software needed to fulfill online orders from its stores.
Morrisons is tied to a contract with Ocado for the next two decades agreed by its previous management – and this a positive and productive move to make the most of that relationship by helping expand its reach geographically as well as tap into click & collect fulfillment, which is a vital battleground in the UK food and grocery market.
Morrisons has additionally disclosed a tie-up with online giant Amazon, which will see it provide hundreds of products via Amazon’s new Pantry grocery web offer as well via its Amazon Prime Now member service.
David Potts has described this as “a low risk and capital light wholesale supply arrangement”.
This agreement is even more significant than its partnership with Ocado – Amazon has far larger capacity than Ocado opening up doors for much quicker growth as well as offering vital opportunities to convert its fast-growing Prime membership base into new and loyal shoppers, which could play a key role in helping recover its grocery share.
Having suffered badly from the continued rise of discounters’ Aldi and Lidl and rushed half-heartedly into online and convenience spaces, which collectively cost previous head Dalton Philips his job last year, this news provides further signs that David Potts is sowing the seeds for a convincing recovery.
He has already sold off its poorly positioned M-Local convenience estate and instead shifted the focus back to its traditional mid-sized supermarket format. He has also simplified its price positioning, abandoning its overly complex price match based loyalty card in favour of one based on a simpler points led saving scheme.
Today’s deals are clever moves to build around this, through more economic growth in new channels than his predecessor achieved. Notably, the Ocado tie-up involves leveraging its stores for online sales via C&C while the Amazon agreement offers vaster online capacity at a far lower risk that the level of investment it has made in its venture with Ocado.
Today’s news may also have a wider impact on the grocery market. Morrisons’ move to partner with Amazon implies there may be limitations to its relationship with Ocado and it also reduces its reliance on the online-only supermarket. 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.
With Ocado still yet to announce a technology partnership with another retailer, this will likely heap further pressure on its management – adding heat to ongoing rumours of a takeover by Amazon itself.
- George Scott is senior analyst at Verdict Retail.