The news that Morrisons is doing a deal with Ocado is no great surprise given the fact that discussions have been going on for several months. But it asks some serious questions about how companies are approaching e-retail and home delivery. This assumes, of course, that Morrisons and Ocado can make the deal stick. Waitrose, Ocado’s other partner, is, by all accounts, not best pleased and has lawyers going through the fine print of the contract as I write.
Since the original partnership arrangement, Waitrose has been moving away from Ocado. The pension fund of its parent, John Lewis Partnership, had a substantial shareholding in Ocado which it sold in 2011. Since then Waitrose has been developing its in-house home delivery service. It has opened one dark store in West London and has plans for a second. Nevertheless, Ocado says it is committed to the ten-year supply agreement it signed with Waitrose in 2010.
What marks out the Morrisons-Ocado relationship is the fact that it is focused on logistics. Morrisons is buying Ocado’s £210m Dordon fulfilment centre on the outskirts of Tamworth. It will then share the facility with Ocado and use it to support its own e-retail service.
Morrisons has been slower than its competitors to get into the home delivery market, and so has had the time to analyse the different approaches that have been tried. Of course, it bought online retailer Kiddicare two years ago giving it some experience of e-retail.
So it is noteworthy that it has decided to go down the dedicated centralised distribution route rather than the deliver from store approach adopted, at least initially, by most of its competitors.
The fact that it opted to form a long term partnership with Ocado, rather than go it alone, is also significant. Collaboration at this stage has a number of benefits. It gives Morrisons the facilities it needs more quickly than it could alone, as well as offering operational synergies.
But perhaps most intriguingly, this will spark new interest in collaboration for e-fulfilment. It’s routine for the delivery part of the operation but so far retailers have been committed to operating their own fulfilment centres.
That makes sense if you are big enough, but there are plenty of smaller retailers that can’t really afford £200m for a fulfilment centre and could benefit from a collaborative approach. All it takes is a catalyst.
Malory Davies FCILT,