Morrisons cuddles up to Amazon leaving Ocado out in the cold

Much of the reporting about the deepening ties between Morrisons and Amazon has focussed on the gut punch it represents to the grocer’s other online partner Ocado.

Understandable enough given the tumble taken by Ocado’s shares (9 per cent at the time of writing). Morrisons shares didn’t exactly jump for joy on the back of the announcement of "Morrisons at Amazon". But then they have put on more than 50 per cent in less than a year, which is quite something.

Morrisons has, in fact, been is one of the more remarkable retail turnaround stories of recent years.

It was only a couple of years ago that the grocer, a distant fourth in terms of a sales, looked to be on its knees. It was the odds on favourite to be the first casualty of the invasion of Aldi and Lidl, having been a late arrival to both of the supermarket sector’s big recent growth engines: online and convenience.

In came David Potts, ex of Tesco, who has set about proving a point that a senior bod at a rival supermarket chain made to me a little while back.

Tesco, he said, might have had its problems but it still has some damn good retailers in its ranks. So Mr Potts has proved. He has overseen four consecutive quarters of sales growth, despite food price deflation, while dealing with the company’s two big strategic challenges, cutting his losses in convenience by pulling out while securing the Amazon partnerships to assist with the company’s weakness online.

Which has created something of a bizarre love triangle, in which Ocado seems to be the third wheel. Morrisons has got away with having two partners by dint of the fact that while Ocado supports Morrisons website serving individual customers, the relationship with Amazon is on a wholesale basis.

Currently Morrisons supplies Amazon with product for the latter to sell via its website. Morrisons at Amazon, available to subscribers to the Amazon Prime service, will see orders placed with Amazon picked at Morrisons stores by the supermarket’s staff before being collected and delivered by Amazon. You pay £6.99 for a one hour delivery slot, but it’s free for two.

For the moment, the service is limited to selected areas of London and, erm, Hertfordshire. In case you didn’t realise it, that’s where Ocado is based. You can only imagine how the latter feels about that.

The new venture isn’t risk free as far as Morrisons is concerned. Some have suggested it could end up cannibalising its own business if, say, Morrisons at Amazon undercuts its supermarkets. Others have raised the issue of Morrisons potentially getting blamed for Amazon’s deliveries going awry, although there wouldn’t appear to be much danger of that happening. There are many things to criticise Amazon about, but the reliability of its deliveries and its approach to customer service are not generally among them.

The real danger is in the partnership going sour at a later date, for whatever reason, just as Morrisons original partnership with Ocado has soured. Partly that is because the arrangement was agreed by the regime of Dalton Philips, which was panicking as a result of being left behind online. Morrisons new bosses started to chafe at the restrictions imposed by the 25 year deal almost from the word go. They agreed new terms in August, but if Morrisons was as pleased with them as it said it was, why trial the new service with Amazon outside Ocado’s front door?

It looks very much like Morrisons sticking two fingers up to its other partner. Which is entertaining for those of us watching the show. But Ocado might very well view it as poetic justice if Amazon tires of Morrisons at some point in the future and treats it in the same way.