"Inspired" move by Morrisons gets thumbs up from analysts

“MORRISONS continues to pleasantly surprise us,” said Clive Black of  Shore Capital – a verdict echoed by analysts today after the announcement of the grocer’s deal with Amazon.

Morrisons announced this morning that they signed a deal with Amazon to supply “hundreds” of products, from fresh and frozen to ambient to Amazon Prime Now (costing £79 a year for Amazon customers) and Amazon Pantry customers.

Mr Black said that it was welcome news for the Bradford-based supermarket’s shareholders, implying that the deal could increase Morrisons’ geographical coverage with potential coverage in Northern Ireland coming from the deal, as well as lower exposure areas in London and the South East. He said it was an “inspired” move by Morrisons’ chief executive David Potts.

Analysts at Shore Capital said that they are expecting the relationship to evolve over time, and that it was an opportunity to increase Morrisons’ manufacturing capacity, which has dipped 20% in recent years.

Despite the positive reaction to the partnership, Shore Capital have not changed their forecasts for Morrisons “given the startup nature of the supply venture and our expectation that it will take time to build up.”

It was also suggested that the “unduly onerous contract” with Ocado could be tempered with their own deal, potentially extricating itself from a “frankly unsustainable” contract with the online food delivery service.

Phil Dorrell, partner at Retail Remedy retail consultants was just as complimentary. He said “[You have] got to admire Morrisons for its initiative and discretion.”

He continued: “This is a low cost but strategically advantageous move by Morrisons giving the grocer a lead on its competition which few will have been expecting.”

Analysts at Retail Remedy expect Morrisons to continue surprising under the helm of Mr Potts, and with a cheaper solution to their online and food supply services, more resources will be available to win back customers.

John Ibbotson of the retail consultants, Retail Vision, called the Amazon deal an “11th hour reprieve”

He said that the price differentials for Amazon versus those of the Big Four supermarkets were incomparable, with an average food grocery delivery costing £20 for them, for which they only charge around £5.

Up until now, he said, supermarkets had accepted that deliveries were permanently loss-making.

He said: “At least there will be no more rumours that Amazon will buy Ocado, as they now don’t need them.”

“It’s now game on for the rest of the Big Four, who 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.”