Ocado Group PLC and its long-time partner Morrisons are undergoing significant changes in their distribution strategy. Morrisons has announced that it will cease deliveries from Ocado's Erith distribution center, a move that is part of a broader strategy to enhance its in-store fulfillment capabilities using Ocado's advanced technology. This decision is expected to allow Ocado to optimize its existing capacity and potentially expand its operations without additional capital expenditure.

Morrisons, which has been collaborating with Ocado since 2013, will now focus on building volumes from Ocado’s Dordon distribution site and expanding its use of Ocado’s AI-powered online network. This shift is aimed at meeting the growing demand for Morrisons' online grocery services while ensuring that customers continue to receive seamless service across the UK. The move is not expected to impact customers, as Morrisons will continue to service all postcodes in England, Wales, and Scotland.

Ocado's CEO, Tim Steiner, highlighted that this strategic shift provides an attractive option for Ocado Retail, a joint venture with Marks & Spencer, to grow without the need for additional capital investment. The decision to reduce operations at the Erith site is also seen as a way to alleviate pressure on the facility, allowing Ocado to focus on other growth opportunities.

In a related development, Ocado recently faced operational challenges at the Erith site due to a fire at a nearby factory, which led to temporary delivery cancellations. However, operations have since resumed, and Ocado has been working to ensure that customer service remains unaffected.

These changes come as Ocado continues to invest in technology to enhance its grocery operations, despite facing challenges in the market post-pandemic. The company, which once had a market cap of £22 billion, has seen its value decrease significantly but remains committed to leveraging its technological prowess to regain market share.