Morrisons scales back use of Ocado in fresh blow to delivery group

One of Britain’s biggest supermarkets has scaled back its reliance on Ocado Group in a fresh blow to the online grocery delivery business.
Morrisons will “gradually cease deliveries’ from Ocado’s automated warehouse in Erith, southeast London, one of the two so-called fulfilment centres it has used since the companies struck a deal in 2013.
It will instead supply customers from its own network of shops and a single Ocado warehouse in Dordon, on the outskirts of Birmingham.
The supermarket chain will still use Ocado’s technology when it delivers online orders from its own shops. Ocado added that the spare capacity at its Erith site could be used by Ocado Retail, the company’s joint venture with Marks & Spencer, which it said would need extra capacity in the short term.
It added that subject to the conclusion of discussions with Ocado Retail, it expected the net cash impact of the move to be “broadly neutral” across 2024 and 2025.
The news concerned investors, however, and pushed Ocado’s share price down by 6¾p, or 2 per cent, to close at 318½p.
Ocado has seven warehouses in the UK. The Erith centre was the site of a fire in 2021 caused by a collision between three robots at the facility that took 100 firefighters more than 12 hours to tackle. The warehouse was also the site of a blaze in 2019 related to waste packaging.
Shares in Ocado have fallen by 47.1 per cent this year, following a difficult period following the pandemic in which customers have returned to stores, challenging the company’s warehouse model.
Ocado slowed the rollout of its own fulfilment centres in 2022 and earlier this year Sobeys, a buyer of its technology, said it would pause the construction of a facility near Vancouver in Canada. In the United States, Kroger has also said it would close three smaller sites and delayed the expansion of fulfilment centres.
The slowdown has stood in marked contrast to the company’s own forecasts. At its capital market day two years ago it said it would have 300 modules — sections of a fulfilment centre that can handle about £70 million of orders each year — by about 2027. However, by June of this year, it had only 112 modules in operation, suggesting it could reach at least 140 by 2025.
Its joint venture with Marks & Spencer has also been plagued by troubles. In February Ocado threatened legal action against its partner in the business over a payment of £190 million.
The return to in-person shopping after the pandemic damaged Ocado’s model, as did cost-of-living pressures that affected its Ocado Retail businesses.
It has since recovered, however, and the company reported sales up by 13 per cent to £1.5 billion in its first-half results for 2024. This was split between an 11 per cent increase in sales at its Ocado Retail joint venture and a 22 per cent rise in revenue in its Technology Solutions division.
In a trading update for the third quarter, it raised the outlook for sales growth for the full year after it reported a 15.5 per cent increase in sales to £658 million.
The increase, over the 13 weeks to the start of September, was stronger than analysts had expected. Revenue this year is now expected to increase by low double-digits, better than previous guidance of mid to high single-digit growth.
The number of active customers increased by 10 per cent to 1.06 million and average orders rose 14.7 per cent to 437,000 a week. Ocado Retail has also been the UK’s fastest-growing grocer for the majority of the year, according to Kantar.