Amazon's deal to sell Morrisons products hammers Ocado

Morrisons’ chief executive David Potts dubbed the deal “low-risk” and shares in the supermarket soared 8.7p, or 4.6%, to 196.6p.

However, the UK’s fourth-biggest supermarket still has some way to go to catch up rivals Tesco, Sainsbury’s and Asda, which have offered online grocery shopping for several years. Morrisons only entered the online grocery market three years ago with a £210 million deal with Ocado, but even today the service is only available in a handful of locations across the country.

In the capital, only north London is served by Morrisons online, leaving the company lagging behind in one of the highest spending cities for groceries in the country.

Today the supermarket also revealed it has agreed to take capacity in Ocado’s new Erith distribution centre in south-east London. In return, the online grocer will create technology for Morrisons to start picking home deliveries in its stores.

Rival supermarkets already use staff in stores to pick online food orders — which is usually a cheaper way than stocking and running an expensive warehouse. It means Morrisons could also expand its in-house home delivery offering and be directly competing with Amazon.

Ocado investors seemed less pleased with the deal and appeared fearful that Morrisons was planning to elope with Amazon, as shares in the company dropped 25.9p, or 9.2%, to 255.94p.

There were also fears that Amazon could prove a major threat to Ocado, although chief executive Tim Steiner has previously waved away concerns.

The exact value of the deal between Morrisons and Amazon remains confidential, but sources said both sides hope for a long relationship.