(Sharecast News) - Shares in grocery Ocado Group fell on Thursday after the logistics tech firm announced that Morrisons will cease using its customer fulfilment centre (CFC) in Erith for deliveries.
Morrisons, which currently shares fulfilment capacity with Ocado Retail at Ocado CFCs in Dordon and Erith, said it has decided to process a greater share of its online deliveries through Dordon and with in-store fulfilment.
Ocado Group, which owns 50% of Ocado Retail - with the other half owned by Marks & Spencer - said the decision was "helpful" as it gives Ocado Retail extra network capacity over the near term as it grows "robustly".
The company said Ocado Retail is approaching full capacity in its current network, so this decision provides "an attractive option" for the retailer.
However, not everyone was convinced. Dan Coatsworth, investment analyst at AJ Bell, pointed out that Morrisons' move followed decisions by several clients in the US and Canada to scale back expansion plans involving Ocado Group's facilities.
"The important takeaway from this announcement is that Morrisons is going to rely more on in-store fulfilment alongside the remaining Ocado centre. That's as big of a red flag as you can get for Ocado's business model," Coatsworth said.
On the plus side, Ocado Group's chief executive Tim Steiner said in a statement that the decision enables Ocado Retail to pursue short-term growth "without an expectation for additional capex".
"As Morrisons reduce their operations at Erith and build their volumes in other parts of the network we are working with them to ensure seamless continuity of service to their customers and to continue strong market share growth across the UK market with the Ocado Smart Platform."
Morrisons chief executive Rami Baitiéh said it would continue operations as usual with no impact to customers.
Ocado's share price was 2.3% lower at 317.40p by 1140 GMT.
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