WAITROSE has struck a deal with online retailer Ocado enabling it to pursue an aggressive expansion of its online grocery business outside London and the M25.

Waitrose, which is wholly owned by the John Lewis Partnership, has been hampered from enlarging its Waitrose Deliver service because the partnership owns a minority stake in Ocado, the dotcom business that delivers Waitrose groceries.

The two groups quietly signed a five-year contract before Christmas which gave Ocado exclusivity in London and the M25 but allowed Waitrose to roll out its Waitrose Deliver service to cover 125 of its supermarkets.

The commercial details of the agreement have not been disclosed.

The contract aims to resolve the animosity between the two sides. Ocado claims it had the right to shut down Waitrose Deliver during the first few years of its contract, but did not exercise that right.

During the past 13 months Waitrose has increased the number of stores offering Waitrose Deliver from 40 to 94 – representing just over 60% of its estate outside the M25.

This has led to an 85% rise in online grocery sales. By the end of this year a further 31 stores will get access to Waitrose Deliver, pushing up coverage to 92% of the stores portfolio.

Waitrose Deliver turned over £80m last year and is expected to burst through the £100m barrier this year. The group’s market share is currently less than 1%, but it plans to more than double sales in the 2009-10 financial year.

Last week, the Waitrosewine.com service, formerly run by Johnlewis.com, moved under the Waitrose E-commerce umbrella.

The online wine service saw double-digit growth last year, while Waitrose Entertaining, its online home dining service which offers catering for parties and special events, is also proving popular.

The company is in the process of spending £1.5m upgrading its online grocery website. It restructured the site in 2008 adding new express shopping features, such as the Shopping Jotter, which works like a shopping list. It allows customers to make a note of individual products in one place. When they are finished, the Jotter locates all the items in one go.

Ocado says that it is on track to generate sales of more than £400m this year. It claims that it achieved record sales of £8m two weeks ago, despite the recession.

If the sales of Waitrose products by Waitrose Deliver and Ocado are combined this will push its online presence closer to J Sainsbury.

Rob Collins, director of e-commerce, insisted this weekend that the two businesses were “very complementary” and ensured that more customers than ever would have access to Waitrose products.

The online grocery market is one of the fastest-growing, most competitive retail markets in the UK. Worth £3.6 billion in 2007, it is forecast to grow to £13 billion by 2012.

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