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Amazon's recently launched"Amazon Pantry" is a limited-range grocery service with around 4,000
items on offer.
NASA/CXC/M.WeissAmazon just signed a major distribution deal with Morrisons, one of Britain's
biggest supermarket chains, which threatens online grocery group Ocado.
Ocado's shares are crashing as a result. OCDO stock is down more than 7% this morning as
investors try to figure out the potential damage that Amazon might do to Ocado.
At the same time,Ocado announced a new "agreement in principle" of its own with Morrisons.
Several other major banks, including Credit Suisse and Goldman Sachs, have already expressed
their belief that Ocado shouldn't try to resist if Amazon wasto make itan offer.
OcadoThis seems pretty threatening for Ocado considering Morrisons has been its jewel in its crown
since it signed a 25-year deal two years agoto sell food online through Ocados online service.
In fact, it's a huge deal.Amazon is a multi-billion dollar global giant, whereas Ocado has yet to
expand outside the UK.
Last year the Guardian reportedDuncan Tatton-Brown, Ocados finance director, saying: "Ocado is
the exclusive provider of online grocery services for Morrisons. This new deal looks like it just gave
these analysts more ammunition. Just looked what happened whenrumours were quashed that
Amazon was not in talks to buy Ocado.
. We are happy to have that discussion. Business Insider asked Ocado for comment but
representatives did not return with a comment at the time of publication.
Perhaps anticipating the potential reaction from the markets over the deal, Ocado also released a
statement about an agreement in principle for Morrisons to share some of the capacity of Ocado's
customer fulfillment centre or warehouse which is still undercurrently under construction in Erith,
south east London. The decision is theirs. That agreement lets Morrisons use some of Ocado's tech
and some space in one of the new customer fulfillmentwarehouses Ocado is building. But they still
haven't been built and Amazon is hot on its heels for a share of the grocery market.
So for now, it looks like Amazon went for Ocado's biggest client withits online grocery and tech
business and the markets aren't happy. Orders are 2.99 ($4.49) for the first box and 99p ($1.48) for
subsequent boxes, and are available to Amazon Prime customers.
Ocado sells online groceriesbut italso creates a whole heap of technology that it can sell or licence to
other businesses. Shares fell more than 6% in the market open:
Yahoo UK
It's not looking pretty. But investors can't get too excited yet Ocado said "there can be no certainty
that an agreement will be reached."
Analysts see Amazon's encroachment on the online grocery space as a threat to Ocado's existence.
Ocado/Tulchan GroupDuncan Tatton Brown, CFO at Ocado."Under these terms Ocado will also
provide Morrisons with the software necessary to fulfill online orders from its stores, primarily
intended to enable online services in areas not currently serviced by a CFC.The Erith CFC is due to
go-live at the end of 2017 and is expected to have capacity of 210,000 orders per week," Ocado said.
But there is no guarantee this deal will go ahead.
Ocado has an incredible tech outfit