Amazon’s bringing fresh groceries to UK

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Amazon has struck a supply deal with Morrisons to distribute the UK supermarket's fresh and frozen products to the e-commerce giant's Prime customers.

Amazon has struck a distribution deal with Morrisons to distribute the UK supermarket's fresh and frozen products to the e-commerce giant's Prime customers, the companies said on Monday, laying down a challenge to Britain's major supermarket chains.

"Hundreds" of Morrisons products will be available to U.K. customers via Amazon's "Pantry" service which was launched late last year. Morrisons' London-listed shares surged 4 percent on the news.

Pantry, available to Amazon's U.K. Prime members, charges users a flat £2.99 delivery fee for the first "virtual box" of gorceries . Each subsequent box is £0.99.

Previously the service only had non-perishable items such as detergent and daipers, but the deal with Morrisons provides fresh goods and allows Amazon to take on the leading U.K. retailers, including Tesco and Sainsbury, and their home delivery services.

"Today's agreement is built on Morrisons unique strengths as a food maker. The combination of our fresh food expertise with Amazon's online and logistics capabilities is compelling," David Potts, chief executive of Morrisons, said in a press release.

"This is a low risk and capital light wholesale supply arrangement that demonstrates the opportunity we have to become a broader business."

The deal is a blow for the U.K.'s major supermarket chains which have been struggling with increased competition from discount retailers such as Aldi and Lidl. For Morrisons, which has also been under pressure, the deal marks a chance to expand its reach with Amazon's extensive network of customers.

It could also pave the way for Amazon to launch its full grocer delivery business in Britain – Amazon Fresh – which is currently only available in select U.S. cities.

Morrisons also Monday announced an agreement with Ocado to expand its own online delivery service. The arrangement will see Morrisons taking a space in Ocado's new "customer fulfilment center" in East London, allowing it to sell to customers across the U.K., the supermarket said.

But the deal has not yet been finalized.

"This amended agreement is subject to detailed terms being agreed and will only proceed if it enables Morrisons to achieve profitable growth online. There can be no certainty that an agreement will be concluded," the company said in a statement.

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