Morrisons (MRW) agrees to share some of the capacity of Ocado’s (OCDO: LSE) customer fulfilment centre, which is currently under construction in Erith, London.
The centre is expected to commence operations in 2018 with an eventual capacity of 200,000 orders every week.
Investors toasted the deal, which builds on a existing partnership between the two companies, sending shares in Ocado and Morrisons 5% and 2.4% higher, respectively.
Broker Shore Capital is optimistic as the agreement will allow Morrisons to build its online capacity in the UK and provide a lifeline to Ocado concerning grocery fulfilment activity in its home market.
Following a two-year ramp-up, Morrisons will be allowed to use 30% capacity of the Erith facility and will meet this percentage of building costs, as well as 30% of on-going building costs.
It will also pay Ocado annual capacity fees, which is combined with a partial reduction in the annual research and development fee.
Morrisons is allowed to license Ocado’s store pick module from the Ocado Smart Platform (OSP), which will provide customers with further options, in a bid to expand its online business.
It will pay certain up-front fees for access and an annual license fee as a percentage of sales generated using the software.
The supermarket is expected to start the rollout next year.
Numis is encouraged by the endorsement of OSP by Morrisons and the longer-term earnings accretion that the agreement will provide for Ocado.
