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Ocado shares plummet as Morrisons agrees Amazon delivery deal

Published 16/11/2016

Ocado shares dived in excess of 6%
Ocado shares dived in excess of 6%

Shares in online grocer Ocado have taken a hammering after Morrisons unveiled a new one-hour delivery service through Amazon.

Ocado, which already has a deal in place to deliver orders from Morrisons.com, saw its share price tank in excess of 6% as competition notched up another gear in the fiercely competitive UK grocery market.

The move will allow customers to order a full Morrisons shop online via the Amazon Prime app, with the choice of paying £6.99 for a one-hour delivery or taking a two-hour delivery slot for free.

While the service will only be available in certain areas of London and Hertfordshire, Morrisons said it could help boost profits by between £50 million and £100 million.

Shares in Morrisons were up just shy of 1% on the London Stock Exchange.

David Potts, Morrisons chief executive, said it was a low-cost move that will deliver more customers to the firm.

"As food maker and shopkeeper, we have unique skills to help build a broader new Morrisons through capital light growth.

"'Morrisons at Amazon' is another exciting joint opportunity and makes Morrisons' good quality, great value for money products available to even more customers."

Amazon announced a deal with Morrisons in February to sell hundreds of its p roducts through its food delivery service Amazon Pantry and its subscriber service Amazon Prime Now.

The US retail giant later revealed a fresh food delivery service - AmazonFresh - in June, giving customers the chance to order their full weekly grocery shop including fresh fruit and vegetables, meat, seafood and dairy products .

Ocado rubber stamped a deal with Morrisons in August to expand the supermarket's home delivery service.

However, shares in Ocado have plummeted around 22% in the last year as investors grow increasingly impatient over a long-awaited overseas deal.

The blow to its stock price comes despite the FTSE 250 firm notching up its best rise in sales volumes for five years when it unveiled third quarter results in September.

It saw Ocado post a 15.4% rise in gross sales to £314 million in its third quarter to August 7, with retail sales up 13.6% at £286.4 million.

Neil Wilson, markets analyst at ETX Capital, said the move was "pure profit" for Morrisons and another "feather in the cap" for its chief executive.

"This is a big money-spinner for Morrisons and gives it a massive edge over Tesco and Sainsbury in the home delivery market.

"With prices being slashed and competition fierce, this is the kind of deal that will make a big difference to the bottom line.

"Morrisons stock has surged this year as a result of the efforts to strip out negative like-for-like sales and lowering costs. Morrisons has just delivered four straight quarters of sales growth - this form looks set to continue."

Prices at supermarket checkouts have continued to fall as Britain's Big Four grocers remain locked in a price war following the rise of German discounters Aldi and Lidl.

Closely-watched figures from Kantar Worldpanel revealed on Tuesday that total sales at Morrisons had slipped 2.4% in the quarter to November 6.

However, Britain's biggest supermarket Tesco saw sales grow at their fastest rate for three years, jumping 2.2% .

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