Blog: Katy AskewCould Amazon look to acquire Ocado?

Katy Askew | 19 June 2013

Just days after the rumour mill suggested the relationship between Ocado and Waitrose is becoming increasingly strained, new speculation has surfaced Ocado could now become a takeover target for Amazon.

Amazon is expanding its small grocery delivery service beyond its home city of Seattle. The online giant is preparing to launch in Los Angeles and, reports suggest, San Francisco could be next on the list.

However, the logistical challenges ahead should not be underestimated. Significantly, Amazon will have to come to grips with developing a reliable cold chain and back-end infrastructure fit for purpose. Delivering CDs and DVDs is one thing: delivering produce alongside chilled and frozen foods is entirely different. And if Amazon is to succeed it has to get it right.

While Amazon has delivered groceries in Seattle since 2007, these concerns prompted US analysts at Cantor to suggest Amazon should look to either set up a joint venture with - or acquire outright - UK online grocer Ocado.

Ocado is yet to turn a profit. Nevertheless, the UK online grocer boasts some of the most extensive know-how in the world on operating a grocery delivery business.

For this reason, when UK retailer Morrisons decided to launch an online business, it set up a 25-year agreement that would see it buy one of Ocado's distribution centres and - most importantly - licence the online retailer's technology.

No doubt, when looking at Amazon's prospects in the US, Cantor analysts concluded the company could benefit from a similar leg-up. Sure, Amazon has an extensive network of distribution centres - but does it have the picking technology or nuts-and-bolts understanding of what it takes to deliver groceries?

And, perhaps through licensing agreements, Ocado could even see its way to turning a profit.

However, there is one player in this ever-more complex picture that might not be too happy. Although it has remained silent on the tie-up, long-term partner Waitrose is reportedly less than thrilled at Ocado's new partnership with Morrisons.

The existing partnership deal between Waitrose and Ocado lasts until 2020. However, with a clause in the contract providing Waitrose with the opportunity to walk away in 2017, further attention on Ocado's relationships with other retailers will likely be keenly watched.


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