Morrisons is playing a dangerous game. But if Amazon is successful it has a lot to gain

Morrisons has always prided itself on its integrated supply chain. It was Sir Ken’s secret weapon. It enabled Morrisons to be surprisingly competitive against its larger big four rivals despite being a relative minnow (especially before the Safeway acquisition). And it is still seen by the Morrisons management as a competitive advantage. (Indeed, Walmart-owned Asda has, in the past couple of years, looked to do something similar in some areas of fresh produce.)

Now Morrisons CEO David Potts is looking to utilise some of the spare capacity its declining sales have wrought to supply… Amazon.

It’s a fascinating prospect - though I’m not sure that’s the epithet Sainsbury’s CEO Mike Coupe might be using. 

Morrisons will supply a few hundred lines only, Amazon reasoning that, as the world’s largest retailer, it has the clout to buy Heinz baked beans itself thanks very much. 

So, is this a Faustian pact, a dance with the devil? Or a stroke of Machiavellian genius as (Morrisons house broker) Clive Black suggests in his column this week? 

It’s certainly disruptive. As well as unnerving its big four rivals, it keeps its own online partner, Ocado, on its toes. Ocado can no longer feel quite so secure about that 25-year deal. And is it a coincidence Morrisons simultaneously announced that Ocado is developing a new in-store picking model to fulfil other orders Ocado’s CFCs can’t reach? 

Of course, Morrisons is playing a dangerous game. In the past it’s sold on excess capacity and unwanted offcuts to the likes of Booker and various foodservice players, as well as other manufacturers. But it’s a different prospect getting into bed with Amazon. On the other hand, it’s a bit like owning shares in Amazon, isn’t it? If Amazon is successful it has a lot to gain in sales and improved operational gearing. At very little cost. And if not, there’s very little lost.

Some commentators have said that none of the other big four would ever consider doing such a deal. But they couldn’t, could they? They don’t have an integrated supply chain. And the move certainly gives the lie to those who suggest Potts, Andy Higginson and the other Tescoites they’ve brought in are turning Morrisons into ‘Tesco-lite’.