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Amazon to realise fresh grocery ambitions in the UK with Morrisons deal

Amazon customers will be able to buy hundreds of Morrisons grocery items from the online seller in a deal that will look to give both skin in the game in the largely untapped food e-commerce business.

The tie-up will allow Amazon Prime and Amazon Pantry customers to purchase fresh and frozen products from Britain’s fourth biggest supermarket in the coming months. It further bolsters Amazon’s push into the food market, which began in the UK in earnest last year when it launched Amazon Pantry, though it did not offer fresh food.

For Morrisons, the deal is a means to an end to get its products in front of more people, with the need to work with what could become a major online threat seemingly deemed a means to an end as it looks to boost its share of a tough market.  

“The combination of our fresh food expertise with Amazon’s online and logistics capabilities is compelling,” said Morrisons chief executive David Potts. “This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business. We look forward to working with Amazon to develop and grow this partnership over the coming months.”

The deal puts to bed rumours that Amazon was poised to acquire Morrisons partner Ocado. The partnership appears to be unaffected by the presence of Amazon, with the supermarket and Ocado reaching an agreement in principle to bolster Morrisons.com. Morrisons’ products will fill more space in Ocado’s new distribution centre in south east London, and will also support a click and collect service.

Both deals with Amazon and Ocado, indicate a more aggressive move into digital from Morrisons this year. The supermarket hasn’t been the most progressive of its rivals in expanding its online footprint but will be looking to e-commerce to create new revenue streams for a business that’s most at risk from the continued growth of the discounters.

Retail experts believe the deal is low cost but strategically advantageous move by Morrisons, that leverages its strength in its upstream supply chain.

“Offering frequent free deliveries of foods compared to paid for large deliveries by the competition is a game changer in how people potentially will buy food, said Jacques De Cock, faculty member at London School of Marketing.

“The challenge is mainly to two players. The first is Ocado, which has yet to make a pure play grocery offering pay (at least in terms of profits). The other is to Tesco, which currently has a 40 per cent share of the market. Neither can compete by offering multiple low value deliveries cost effectively. Their main hope is that Amazon will struggle either in meeting their price points or offering specific time slots for perishable or frozen food delivery which cannot be left standing.” 

Phil Dorrell, partner at retail consultants Retail Remedy, added: “Price advantage is a hard battle to win, sapping time and resource. Morrisons has found a way to fight on price without it being all consuming, leaving resource available to find the next way to surprise the competition and win back customers.”

Off the back of the announcement this morning (29 Febraury), Morrisons’ share price rocketed 5 per cent to 197p, making it the biggest rise on the stock market. Ocado on the other hand was the biggest faller, slumping 6.5 per cent to 263p.

Featured by The Drum