Ocado’s Morrison Talks Said to Still Center on Technology Tie-Up

Ocado Group Plc’s (OCDO) talks on a possible tie-up with William Morrison Supermarkets Plc (MRW) still center on developing and licensing Web technology and exclude Ocado selling or delivering Morrison products, according to a person familiar with the matter.

The discussions with Bradford, England-based Morrison also concern mobile applications and the use of Ocado’s new distribution center in Dordon, central England, said the person, who declined to be identified because the talks are private. They spoke following concern that a broader collaboration may sour its relationship with the competing Waitrose chain.

Ocado fell as much as 13 percent in London trading today after the Sunday Telegraph reported that Waitrose would reject any delivery deal between the online grocer and Morrison. Waitrose, a part of John Lewis Partnership Plc, would examine any deal between the two to ensure no breach of contract, the newspaper cited Waitrose Managing Director Mark Price as saying.

Ocado announced in March that it was in discussions to help Morrison establish an online grocery service. The company sells groceries from Waitrose, with whom it has an agreement to use the grocer’s brand on its website and vans until 2020. An option exists to terminate that deal as early as 2017.

The Waitrose agreement states that Ocado “is not permitted to sell any products that carry the brand of certain competitors,” according to Ocado’s 2010 initial public flotation prospectus. Ocado also must not bring the John Lewis or Waitrose brands “into disrepute” and undertook “not to position its offering as a whole to be similar to that of a discount retailer,” according to the prospectus.

Spare Capacity

The talks with Morrison include how the grocer could use spare capacity at Ocado’s recently-opened second warehouse in Dordon, central England, to start an online grocery service. Ocado said in March that the facility was handling 10,000 to 15,000 orders a week, a tenth of what its site in Hatfield, southern England, handles at peak times, and that it was in discussions with retailers over licensing its technology.

Morrison reiterated May 9 that the online service will start in January 2014, regardless of an agreement with Ocado. A spokesman said today he could not go beyond that statement.

Morrison favors Ocado’s method of delivering food from a central distribution center, rather than using local stores to fulfil orders like Tesco Plc (TSCO), J Sainsbury Plc (SBRY) and Wal-Mart Stores Inc. (WMT)’s Asda, a person familiar with the talks told Bloomberg News on April 26. Using a central hub would lead to fewer substitutions of products, one of the main online shoppers’ irritants, the person said.

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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