Morrison's In Talks Over Ocado Venture

By Mark Kleinman, City Editor

Wm Morrison, Britain's fourth-biggest supermarket chain, is in talks over a partnership with Ocado that would involve utilising the online retailer's warehouse capacity and technological expertise as it plays catch-up with its larger rivals.

I have learned that Morrison's, which will on Thursday announce its intention to launch a fully-fledged online grocery business, is in detailed talks with Ocado's management team about the joint venture.

The details have not yet been finalised and the negotiations will not be completed in time for an announcement to be made tomorrow, according to insiders.

One person close to the talks said that while they had been taking place for some time, the talks might not lead to an agreement, and added that Morrison's online strategy was not reliant on striking a deal with an external partner such as Ocado.

Under the terms of the deal being discussed, Morrison's would pay to use part of Ocado's new distribution centre in Dordon, north Warwickshire, and would harness Ocado's acknowledged digital technology expertise to build its customer-facing website.

People close to the two companies said it was possible, although unlikely, that Morrison's would also acquire a small equity stake in Ocado.

Even if Morrison's did become a shareholder in Ocado, it should not be viewed as the prelude to a full takeover, which has been widely speculated in the City for some time.

Dalton Philips, Morrison's chief executive, will use tomorrow's full-year results announcement to signal the company's move into online retailing and will outline the chain's plans to build a substantial convenience store business.

Morrison's recently bought 49 Blockbuster UK outlets following the DVD rental chain's collapse into administration.

The two new strategic objectives for Morrison's come years after all of its main competitors – Asda, J Sainsbury and Tesco – built a major presence on the internet.

Tesco is now the world's biggest online food retailer, while Waitrose, which backed Ocado's launch, also has its own digital service.

Morrison's is also drawing up plans to open two so-called 'dark stores', which are used to fulfil online orders, as part of its internet strategy.

If the talks with Ocado conclude successfully, the partnership would deliver additional revenue for the online retailer, which has struggled to break even since its launch more than a decade ago, despite winning plaudits from customers.

Sir Stuart Rose, the former chairman of Marks & Spencer, recently joined the board of Ocado and will replace Lord Grade as its chairman in the coming months.

His arrival fuelled speculation that Ocado would become a takeover target, although this was dismissed as a "red herring" by those close to the company.

Morrison's and Ocado, which will issue an interim management statement tomorrow, declined to comment.

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