Q&A: Morrisons deal will "transform our balance sheet", says Ocado boss Tim Steiner

Retail Week: How significant is the deal?

Tim Steiner: It is going to transform our balance sheet and will able us to invest in the business and improve the platform. It is also a validation of our much-challenged business model. The first stage of monetisation on intellectual property will also help immediate profits because it will move R&D faster with investment driving greater growth. It is complementary to the Waitrose agreement.

Duncan Tatton-Brown: It will enable us to finance the next stage of growth in the UK. Now we can build smaller increments to capacity, [and the deal gives] flexibility in how we grow in terms of where we invest. We want to develop the business in different countries.

We are already investing in terms of the level of capacity and we have a non-food offer which we want to grow and we can invest in more marketing, tightening up prices and having flexibility.

It would also help with the third Customer Fulfilment Centre. We will start looking for locations in the second half of next year. We haven’t decided where it will be but given the locations of the existing warehouses we are more likely to be in the south-east of the country, but that is not set in stone.

The funds will also allow us the flexibility to go overseas if we wanted to. We have and and continue to have conversations with international companies.

Talks with Carrefour have been mooted previously, are there any plans to partner with them?

TS: At the moment, no. We work with them and they are a supplier to us offering French food and we might extend that.

How does the deal with Morrisons impact your existing agreement with Waitrose?

TS: The deal we have entered into has no impact on the contractual relationship we have with Waitrose, it is something that is only positive. We are their largest customer on the planet. The deal is going to strengthen our balance sheet, allowing us to improve, attract more customers, accelerate growth, sell more Waitrose groceries and pay them a larger fee. I think once the dust has settled they might acutally think about it a bit differently.

Have you spoken to Waitrose managing director Mark Price today and what did he say?

TS: I don’t think it is fair to play out every conversation in the media.

Analysts have been speculating that Waitrose will exit the agreement with you when it comes up for renewal in 2017, are you making preparations in case that happens?

TS: As a sensible business with large suppliers every time there is a discussion around a contract renewal obviously we make preparations for an alternative route. We have prepared a plan B.

The agreement allows you to be in a deal with Morrisons and ‘one other’, what does this mean?

For the intellectual property platform Ocado can only be used by two people to sell groceries in the UK and they are Ocado.com and Morrisons.com. But it can be used to sell non-food and to sell internationally.

The agreement with Morrisons lasts for 25-years, why such a long time?

TS: We wanted to think about it as a strategic operation  and it will enable us to help Morrisons build a world-class site.

We will be advising on the website and functionality as well as mobile but we don’t have impact on the product.

DT: For a customer coming to the website they won’t know the website has any relationship with Ocado.

How do you see Ocado in five years?

TS: We would like to see a substantially larger Ocado business in the UK and we would like to see international deals.