Amazon (AMZN) is set to shake up Britain's $225 billion supermarket landscape after cutting a deal with Morrisons (MRWSY) , one of the country's Big 4 chains, to include same-day delivery in the fiercely competitive market.
The deal sent shares in first-mover delivery service Ocado (OCDDY) sharply lower in London, after its restrictive business model forced several food retailers to renegotiate contracts.
From Wednesday, Amazon Prime customers in selected areas of England will be able to order a full Morrisons order through the Prime Now app. Customers will then be able to pick it up from a local store on the same day or have it delivered within the hour for a charge of £6.99. There is also an option of free delivery within a two-hour slot on the day. Amazon Prime costs £7.99 a month in the U.K.
Morrisons' stock rose 1.04% to 224.10 pence amid a down market in early London trading, before paring gains to 0.56%. The stock has risen 17.66% in the past three months against a gain of 5.08% for the FTSE 350 retail index.
Since June, Amazon customers have been able to buy hundreds Morrisons products through the website, in a bid by the online retailer to add fresh foods to its grocery range.
Supermarkets in Britain remain in a fierce price war, as low-cost competitors come to market (with bricks and mortar stores). The battle has now turned online as more and more customers rely on grocery delivery.
Morrions said that the initiatives are capital light and "although still in their early stages, will contribute to the £50 million to £100 million incremental profit opportunity we outlined at the 2015/2016 preliminary results."
Earlier this month the chain reported a fourth consecutive quarter of same-store sales grow on lower prices and good Halloween trading.
Like-for-like sales, excluding fuel, were up 1.6% in the three months ending October 30, the company said, while same-store sales were up 2% and 0.7% in the second and first quarters respectively. Total sales, excluding fuel, were down 1.2% due to the impact of store closures and the exit of convenience stores.
Morrisons, which held 10.5% of the U.K. market share for the 12 weeks ending Nov. 6, according to data from Kantar Worldpanel, has another home delivery deal with Ocado.
Ocado shares were down 5.32% to 268 pence, they have lost 11.87% since the start of the year.
Morrisons earlier this year announced it had renegotiated its deal with the delivery company after executive complained it was too costly and restrictive. The new deal inked in August ended the exclusivity arrangement, allowing Morrisons to deliver in areas of the country Ocado did not. Morrisons was also released from the profit-sharing arrangement that saw them hand over between one-quarter and one-half of what it earns from online sales.
Premium supermarket chain Waitrose in 2014 waged war against Ocado due in large part to its association with Morrissons. Ocado exclusively delivered Waitrose products, but the deal with the more down-market chain, prompted Waitrose to set up its own online store and deliveries.
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