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UK Supermarket Morrison in Online Deal With Ocado

Friday, 17 May 2013 | 1:58 AM ET
Laurence Griffiths | Getty Images News I Getty Images

U.K. supermarket Morrisons announced it is going into partnership with online delivery service Ocado on Friday.

The agreement will enable Morrisons to enter the online grocery market, an area so far dominated by its U.K. rivals Sainsbury's, Tesco and Asda. Morrisons will make an initial capital payment of up to 170 million pounds ($260 million) to Ocado for its technology and services operations as well as a licence and integration fee.

"It's a critical channel and we want to be online and Ocado has superb technology," Dalton Philips, chief executive of Morrisons told CNBC on Friday.

"We've been working on this for some time…and we're looking forward to being online by the end of the year," he said, conceding that the supermarket had been slow off the mark to enter the online shopping space.

"Ideally we would have started a little earlier but we're starting today and we're starting with the best technology in the business with Ocado."

Morrisons anticipates that its new online grocery store will cost a further 25 million pounds for development, as a result of which, its total full year new business development investment will be 65 million pounds.It's expected that the online business will generate positive earnings before interest and taxes (EBIT) in 2017-18. Capital expenditure will rise by 100 million pounds to 1.2 billion pounds to reflect the additional investment.

"We've talked about being profitable after the third year at an EBITDA level and an EBIT level after the fourth year. We'll go from a standing start to the fast lane after three years," he forecast.

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