Comment: Ocado and Waitrose’s game of brinkmanship

That Waitrose managing director Mark Price has so clearly drawn a line in the sand by threatening to derail a potential tie-up between Ocado and rival grocer Morrisons goes some way to demonstrating the rather unique nature of the relationship with its online partner. Waitrose isn’t just a supplier into the etailer, it is absolutely central to its business.

“I would never knowingly sign a contract with Ocado that agreed to them working with another retail competitor,” he said this week. What is explicit in that statement is that Waitrose will pore over any deal in order to understand whether it breaches the existing contract between the two companies. What is implicit is the suggestion that the ongoing negotiations between Morrisons and Ocado are having a damaging effect on the latter’s relationship with Waitrose.

Both Morrisons and Ocado are savvy operators and one can only imagine that the deal being chiselled out will be mindful of Waitrose’s needs - ensuring Ocado’s legal obligations are met. And the logic of Ocado seeking to utilise its intellectual, and potentially physical, property to service other retail businesses and leverage a new revenue stream is sound, not least when Waitrose is itself expanding its own online business.

In any deal where Ocado licensed its technology and sublet distribution space, it would be acting as the supplier, rather than the grocer. Ocado has referred to any arrangement as “complementary” to its partnership with Waitrose, which would be “unaffected”.

But these two terms are not necessarily compatible in this case. Waitrose is clearly uneasy that discussions have continued without the transparency it would like and Price has been quick to bare his teeth, referring to Waitrose’s response as “defcon 1”.

One leading retail analyst has estimated that the loss of the Waitrose tie-up - which is due to run until 2020, but with a break clause three years earlier - might lead to a 75% fall in Ocado sales. And while the expansion of Ocado’s revenue model is attractive, there is no guarantee it will pull off the deal with Morrisons, which not only already has its own IT infrastructure through Kiddicare but also a 10% stake in Fresh Direct. Morrisons has said unequivocally that it will launch online by the end of next January, regardless of whether a deal is struck with Ocado.

At present, much is up in the air. But what happens in the next few weeks will determine the future direction of all three retailers.