Morrisons has landed a coup against its rivals by winning a lucrative new deal to supply fresh food to global online giant Amazon.
The big supermarket players have been quaking at the thought of Amazon stealing their customers by launching a version of its US Amazon Fresh service in the UK, but the online retailer has selected Morrisons as its partner instead of launching its own service.
The deal is expected to introduce wealthy Amazon Prime customers to Bradford-based Morrisons’ cut price fresh and frozen food offering.
Amazon Prime customers pay £79 a year to be a member of the club and are happy to pay a £2 tip to drivers when they deliver groceries.
However the service has been very limited, with customers buying store cupboard staples, toiletries and toilet rolls, rather than a full shop.
The Morrisons deal will kick off with Amazon Prime shoppers being able to buy hundreds of Morrisons fresh food products such as meat, fish and fresh fruit.
Morrisons made a late entrance to online and only has around three per cent of the UK online grocery market so it is bigger rivals Tesco, Sainsbury’s and Asda that are expected to be hit by Amazon’s entry into fresh food.
Morrisons’ chief executive David Potts said: “The combination of our fresh food expertise with Amazon’s online and logistics capability is compelling.”
The service will initially be available to Amazon Prime shoppers in London, Glasgow, Edinburgh, Birmingham, Bristol and Milton Keynes, which will extend Morrisons’ reach beyond its Northern heartlands. Amazon has plans to roll out the service to other cities.
Analyst Clive Black at Shore Capital said: “We see the tie-up with Amazon as being potentially quite inspired by David Potts, as it is highly complementary to the business in its current form. We have heard it said by some that Mr Potts may be more of a retailer than a strategist - such folk may need to think again.”
Mr Potts said “This is a low-risk and capital-light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business.”
The deal will allow Morrisons to infiltrate the important London market where it currently only operates in the north of the capital.
Analyst Bruno Monteyne at Bernstein said: “This deal fills an important hole for Amazon’s Prime Now service as the key component missing from that is fresh food.”
Other analysts said the deal will put pressure on Morrisons’ big three rivals.
John Ibbotson at Retail Vision said that Morrisons’ competitors “suddenly don’t look so big after all”.
“Tesco could soon be about to find out what it’s like to be David rather than Goliath,” he said.
“The only winner is the consumer. The big four are fighting back with click-and-collect, but who will want that if Amazon delivers to your door in one hour?“
The tie-up boosted shares in Morrisons which rose six per cent to close up 11p at 199p.
Retail analysts have long speculated that Amazon was gearing up to launch Amazon Fresh in Britain after it previously tested a small range of chilled and frozen items in the country.
Morrisons, which has a smaller footprint in the more affluent areas of London and the south east of England than Tesco and Sainsbury’s, will have less to lose from Amazon’s entry into the market.
Amazon launched delivery of fresh food in Seattle in 2007 and has moved to a handful of other US cities since then. Its expansion into food in the rest of the world has focused so far just on packaged goods due to the complexity of delivering fresh and frozen products.
Mr Monteyne at Bernstein said the deal means Amazon can now target every part of the retail sector - from the big weekly shop to the short trip to the local store to buy bread, milk and vegetables.
“Morrisons may feel that Amazon isn’t really a threat for its smaller stores in the North of England,” he said.
“This would be a convenient divide-and conquer outcome where Amazon and Morrisons specialise where they are best and support each other mutually.”