City surprised as Morrisons opens online talks with Ocado

Morrisons today startled the market by revealing it is in talks with online grocer Ocado, in an attempt to make up years of lost ground on its big supermarket rivals.

Alongside posting its first fall in profits for seven years, the UK’s fourth-biggest grocer insisted it would launch food online before February irrespective of the outcome of the talks, which centre on the potential licensing of Ocado’s technology.

The Bradford-based grocer stressed it was not discussing acquiring all, or even part, of an equity stake in the internet food specialist, although the spike in Ocado’s shares today suggested the City was licking its lips about some possible corporate action.

Morrisons chief executive Dalton Philips, who joined in March 2010, said: “There has been discussions [with Ocado] around intellectual property — essentially their technology and operating practices. They are discussions around a possible commercial relationship.” He added: “It is one option for us. The key point for us is we are going online with a fresh focus and Morrisons’ offer.”

The comments lit the blue-touch paper of Ocado’s shares today, which rocketed by 29.9p, or 22 per cent, to 167.3p.

Finance director Duncan Tatton-Brown insisted the talks “do not affect” Ocado’s existing, long-term relationship with Waitrose. He added: “There is no certainty of an agreement.”

Morrisons has been hurt by not selling food on the web, as Tesco, Sainsbury’s and Asda hoover up internet shoppers and also convert them to shop in their stores.

Philips remained tight-lipped on its online food plans, but the launch is likely to combine staff picking groceries for internet orders in store with dotcom-only facilities, which are used to fulfil grocery orders but don’t have any customers, in Yorkshire and around London.

In addition to online, Morrisons has been disadvantaged by only having a small number of shops in the fast-growing convenience-store market and weak trading in its core supermarkets.

These factors saw the grocer post an 8 per cent fall in pre-tax profits to £879 million over the year to February 3. This was its first decline since 2005-06 when Morrisons was recovering from its troubled acquisition of Safeway.