Ocado 'Playing With Fire' Over Waitrose Contract

Grocery delivery firm Ocado may have irreparably damaged its relationship with Waitrose as talks with Morrisons turn into a 'soap opera,' a leading analyst has warned. 

Stockbroker Shore Capital also estimated that if Ocado's partnership with Waitrose were to collapse it could lose 75-80 per cent of sales overnight. 

Waitrose, owned by the John Lewis Partnership, has reacted badly to Ocado's recent talks to offer its delivery service to Morrisons. Waitose says its name is painted on the side of Ocado's vans and a tie up with Morrisons would be damaging. 

Waitrose managing director Mark Price said this weekend he would seek to block any deal. He also revealed that he told that to former Morrisons chief executive Marc Bolland when he approached Price to seek his reaction to a possible tie up between the Bradford-based Morrisons and Ocado four years ago. Morrisons is now run by chief executive Dalton Philips while Bolland is at Marks & Spencer. 

Waitrose with Ocado contract runs to 2020 but small print in the deal allows the supermarket an opportunity to break away in 2017. 

Shore Capital analyst Dr Clive Black said in a report released to investors this morning: 'Whilst Ocado states that any agreement with Morrison's would not be a conflict with Waitrose, we see the mood of Mr. Price & Co, as being deadly serious. As such, Ocado may have irreparably polluted a commercial relationship upon which it is dependent and it must lead to a greater chance of a break in 2017 in our view.'

He continued: 'Indeed, the tie-up with Morrison and Ocado may be taking on a soap opera feel, something that we cannot believe that Dalton Philips' and the Board of profitable Morrison welcome. That said it is just another episode in a series that we deem to have a very poor story line.'

Morrisons has said that, while talks with Ocado continue, it has other options that will still allow it to launch an online food delivery service. Ocado has said the talks with Morrisons do not include the possibility a takeover by the supermarket. 

Black said: 'We believe that Ocado is 'playing with fire' in speaking to another British supermarket group, as it tries to utilise its substantially greater fulfilment capacity, because the group's umbilical cord to Waitrose may be cut sooner than we anticipated and Ocado cannot exist as a commercial entity without Waitrose in our view.'

In Early trading Ocado's shares fell more than 8 per cent to £2.04 which values the retailer at £1.3 billion according to lse.co.uk. 

Marks & Spencer, Morrisons and Waitrose have been linked to a possible acquisition of Ocado but Black said he could not see a buyer paying for the firm at this level of valuation.