Blog: Ocado papers over cracks, but Waitrose strain remains

Chris Mercer | 26 June 2013

Surely, Ocado's assertion that its deal with Morrisons will have no impact on its existing supply deal with Waitrose is built on weak foundations?

A senior Ocado source, who wished to speak off-record, reiterated to just-food today (25 June) that the online grocery supplier has absolutely no concerns about the ability of its Morrisons supply contract to slot neatly into place alongside an existing deal with Waitrose.

The comments come as the working relationship between Ocado and Waitrose again faces media scrutiny.

Ocado is nothing if not tenacious in its own defence. And yet, it's not as if relations between it and Waitrose were blissful harmony, even before the Morrisons deal.

Back in January this year, as analysts digested Ocado's Christmas trading figures, some commentators painted a stark picture of the online retailer's position. It simply did not have enough customers to make enough profit, they said.

Meanwhile, Waitrose was pressing ahead with its own online grocery business, making the high-end, John Lewis-owned retailer both a competitor and partner of Ocado. A satisfactory situation? Hardly. It's like a married couple looking in opposite directions at the dinner table.

In the present environment, Ocado needs Morrisons as much as Morrisons needs Ocado. Just look at Ocado's share price, which is up by 75% in the past three months. Morrisons, on the other hand, has been achingly slow to log on to grocery cyber-sales.

In the near-term, Ocado has been under tremendous pressure to prove it can make money in a competitive grocery sector - and without any bricks-and-mortar stores to back up its online presence. Morrisons has clearly injected some much-needed confidence, and Ocado needs to keep everybody as sweet as it can.

The Waitrose deal is set to last until 2020 on paper. Whether it makes it that far must be in question, especially given that Waitrose has an opt-out option in 2017. The key thing, though, is that Ocado's deal with Waitrose has had a finite feel to it for some time.

 


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