Morrisons is phasing out deliveries of online orders from Ocado’s Erith CFC, and expanding its store-pick fulfilment model.
The supermarket has been working with Ocado since 2013, sharing capacity with the online pureplayer at two of its customer fulfilment centres in Dordon and Erith.
As part of the move, Morrisons will “gradually cease deliveries” from the Erith site, while expanding the number of stores from which online orders are picked from shelves, as well as boosting volumes from Ocado’s Dordon CFC.
“We have a successful partnership with Ocado and we value their expertise and their technology highly,” said Morrisons CEO Rami Baitiéh. “As our online business continues to grow, we have decided to process a greater share of our online volume through the Dordon CFC and with in-store fulfilment – which gives our customers full access to our unique Market Street offer.
“Morrisons.com will continue to service every postcode in England, Wales and Scotland, with no impact to customers,” he added.
Morrisons will continue to use Ocado’s AI-powered in-store fulfilment solution as part of the picking process.
Ocado said the shift “opens an attractive option” to provide Ocado Retail – the joint venture with M&S – with “extra network capacity over the near term” since it “continues to grow robustly and approaches full capacity in its current network”.
“As Ocado Retail moves towards full utilisation of existing capacity, this decision enables a helpful option to provide it with further short-term growth, without an expectation for additional capex,” said Tim Steiner, CEO of Ocado Group. “As Morrisons reduce their operations at Erith and build their volumes in other parts of the network, we are working with them to ensure seamless continuity of service to their customers and to continue strong market share growth across the UK market with the Ocado Smart Platform.”
Ocado Group said it expected the net cash impact of the move “to be broadly neutral” across the next two financial years.
Last year, Ocado client, the US supermarket chain Kroger put its plans for opening new Ocado-powered CFCs on hold. “Right now, all the energy is focused on the ones we have and making sure that those are where we want them to be, where they need to be and on a sustainable basis…We’re making progress, but we wouldn’t be [at] the point where we would start focusing on additional sheds until we make sure that we have a clear path on the ones we have,” said Kroger CEO Rodney McMullen at the time.
Earlier this year, Canadian chain Sobeys similarly put on pause a plan for another Ocado robotic warehouse and revealed the tie-up between the two businesses was no longer exclusive.
However, in July, deliveries commenced from two new Ocado CFCs for Australian supermarket Coles.
Of Morrisons’ move, AJ Bell investment analyst Dan Coatsworth said it was ”as big of a red flag as you can get for Ocado’s business model”.
“The ground beneath Ocado’s feet continues to crumble,” Coatsworth said. “Ocado’s strategy is centred on the use of automated robots in big warehouses. It believes these are far more efficient than sending grocery workers up and down supermarket aisles with a shopping list, filling a basket.
“Many supermarkets would argue otherwise, particularly because so many people still prefer to do their weekly shop in person and online demand isn’t growing as fast as one might have expected four years ago. The goods are already on the shelves in the supermarket and it doesn’t take long to fill a basket.”
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