Supermarket chain Morrisons has announced that it has reached a long-term agreement with Ocado Group which will see it begin an online grocery delivery service next year.
The two companies have been in talks for several months over the service, due to go live next January, and will see Ocado provide its end-to-end technology, logistics and and distribution operations.
An initial payment of £170m has been paid to Ocado to purchase Dordon Customer Fulfilment Centre in the Midlands, and a further £46m will be invested to expand the site to meet Morrison's requirements.
A further £25m is expected to be spent by Morrisons on development costs, it has said.
Dalton Philips, CEO of Morrisons, explained: "This agreement is a significant strategic step for Morrisons. From a standing start, Morrisons will be competing in the fast growing on-line channel by the end of this year with a really compelling proposition. The customer gets our affordable fresh food delivered by Ocado's state of the art distribution system. I'm confident that Morrisons.com will grow over time to be an operation of real scale and significance whilst creating meaningful long-term value for Morrisons shareholders"
Tim Steiner, CEO of Ocado said: "Morrisons desire to offer its customers the choice of online shopping illustrates the structural shift we are seeing in favour of the channel. We see Morrisons decision to adopt our model to drive its online launch as a further endorsement of our technological and logistical excellence. This validation should support the internationalisation of our model as well as the growth of our UK business by increased market use of our operating model, enhancing capital efficiency and improving returns "Our customers will see no change to the service they receive from Ocado as a result of this agreement. We will continue to source products under our long term agreement with Waitrose, and our customers will continue to benefit from the existing high levels of service, wide range of products and competitive prices that they currently enjoy."
No mention has been made in the statements over Ocado's existing relationship with the John Lewis Partnership's grocery firm Waitrose, which has claimed a conflict of interest as a result of this deal.