Morrisons case study

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 technology developments.

What’s next?

We shall seek further opportunities to expand our business along geographic and product lines in the future, including arrangements with third parties.

"Given the proprietary nature of our knowledge, there exist multiple opportunities to deliver value using our IP."