Morrisons will supply groceries to Amazon customers in the UK under a new deal with the US online giant. The supermarket said it will supply products for the Amazon Prime Now and Amazon Pantry services. Amazon Pantry was launched in the UK last year, escalating competition with the big four supermarkets, but did not offer fresh food. Under the new deal, Morrisons will supply fresh, frozen and non-perishable goods to Amazon customers.
The expanded Amazon service will be available later this year. Analysts at Shore Capital said there was “strategic merit” in Morrisons exploring a commercial tie-up with Amazon. Ocado has a 25-year agreement with Morrisons to run the supermarket’s online delivery service. The supermarket also said it will expand the geographical coverage of Morrisons.com by taking space in Ocado’s distribution centre in Erith, southeast London.
However, Morrisons said of the Erith deal: “This amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrisons to achieve profitable growth online. There can be no certainty that an agreement will be concluded.” This agreement will sound a warning to the big on-line grocers that Amazon means business as a destination for UK online grocery shopping. It currently has a small food delivery business but it has big ambitions and this tie-up is an important step in realizing them. Morrisons was relatively late to online delivery so have little to lose to the new entrant as they only have 3% of the market themselves but it may worry Tesco which has over 40%.
Morrisons will also gain an important new channel for its food manufacturing business and will at a stroke essentially become a food wholesaler to Amazon. David Potts, chief executive of Morrisons, said: “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.”