What’s the news?
On 17 May 2013, we announced Ocado had
entered into a 25 year agreement with Morrisons to
provide operating and technology services to enable
Morrisons to launch and operate Morrisons.com, its
online grocery business. Our shareholders approved
the agreement on 25 July 2013 in a general
meeting. Morrisons.com was successfully launched
with first orders delivered on 10 January 2014.
Why is it important?
We drive shareholder value through the application
of our intellectual property and technology, which
in turn powers our market leading customer
experience and operating efficiency. Given the
proprietary nature of our software and business
processes, there exist multiple opportunities
to deliver value using our IP. Our agreement
with Morrisons represents the first case of
commercialising our knowledge, and is a clear
validation of our operating model.
What’s the deal?
There are two parts to the agreement. Licensing
of services and technology to Morrisons results in
a series of annual fees to Ocado for IT, R&D and
operating services as well a bonus fee dependent
on Morrisons.com’s profits in the future. A sale and
leaseback of property and equipment, completed
in July 2013, has resulted in payments to Ocado of
approximately £140 million, together with a sharing
of fixed costs at the Dordon CFC and other CFCs or
spokes that may be jointly developed in the future.
How does it work?
Morrisons.com was launched utilising part of the
capacity of the Dordon CFC. Morrisons.com is
a Morrisons owned business, and Morrisons is
responsible for marketing to customers, organising
and delivering product range to the Dordon CFC,
and deciding on their commercial terms and pricing.
All other aspects of the operation are run by Ocado.
The sharing of capacity in Dordon and future CFCs
and spokes, including sharing the fixed costs and
capital expenditure, further enhances our ability to
scale our operations efficiently.
Why is it attractive to Morrisons?
As well as a very attractive agreement for Ocado, this
arrangement was very compelling for Morrisons. It
enabled them to launch, in a very short time frame,
a full online offering with market leading service.
The investment was arguably significantly less than
they might have had to invest with a standalone
business and the nature of the arrangements gives
Morrisons the benefit of utilising any future Ocado
We shall seek further opportunities to expand our
business along geographic and product lines in the
future, including arrangements with third parties.