Morrisons' unlikely Amazon tie-up is a godsend

The ailing supermarket chain could do with an injection of West Coast innovation.

by Jack Torrance
Last Updated: 04 May 2016

MT choked on its porridge while flicking through this morning’s headlines. Morrisons, the struggling supermarket chain that has been late to the party on everything from loyalty cards to online shopping has inked a deal to sell its food through Amazon, the innovative Seattle-based megalith that has spent its two decades of life laying waste to traditional retailers.

The tie-up means members of Amazon’s Prime Now scheme will be able to buy fresh groceries from its Pantry service in the UK for the first time. The ecommerce giant had long been expected to expand into Britain's food market but its decision to partner with Morrisons is something of a surprise.

‘The combination of our fresh food expertise with Amazon's online and logistics capabilities is compelling,’ said chief exec David Potts, who must be feeling pretty pleased with himself today. ‘This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business.’

The deal is certainly a feather in the cap of Potts, the man with the job of turning Morrisons around. Though the grocer’s Christmas sales figures were better than expected it has struggled to compete with discount grocers Aldi and Lidl. A bit of West Coast innovative thinking could be exactly what it needs.

‘With the Amazon deal... Morrisons has been granted an 11th hour reprieve,’ said John Ibbotson of consultants Retail Vision. ‘It's now game on for the rest of the Big Four, who suddenly don't look so big after all. Tesco could soon be about to find out what it's like to be David rather than Goliath.’

But what’s good news for the grocer is less welcome for Ocado, the online supermarket that has been responsible for providing Morrisons' online shopping service since 2013. Now that Morrisons is in the arms of Amazon, there are surely question marks (however valid) over how long its partnership with Ocado will last.

The ink is barely dry on a deal to expand that relationship, which was announced today. But Morrisons warned, ‘will only proceed if it enables Morrisons to achieve profitable growth online. There can be no certainty that an agreement will be concluded.’ Ocado’s shares were down 8.7% this morning, so investors are clearly a bit spooked (or perhaps just disappointed that a rumoured Amazon acquisition of Ocado now looks very unlikely).

Amazon is already flirting with bricks and mortar in the form of book shops. Could Bradford’s finest be next on its acquisition list? Probably not, but looking at CEO and founder Jeff Bezos’s track record of catching people by surprise you never know.

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