Why Kroger did a deal with Ocado

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Why Kroger did a deal with Ocado

By Gina Acosta - 09/18/2018
Ocado said on Tuesday that Kroger is making good progress identifying locations for the first of at least 20 sites to build automated warehouses in the United States.

Food retailers in the U.S. should be watching closely the performance of Ocado, the U.K.'s leading online grocer, for a taste of what to expect from Kroger in the years ahead. 

Ocado reported impressive third quarter results on Tuesday that would seem to be an indication of future success for any entity affiliated with the innovative company, and especially Kroger.

Ocado and Kroger stuck a deal in May to help the grocery chain build automated warehouses. Ocado said on Tuesday that Kroger is making good progress on identifying locations for the first of at least 20 sites to build the automated warehouses in the United States. Kroger is working to identify the first three sites for warehouses, which typically take two years to open, the company said.

“They’re making good progress identifying which particular sites and which particular cities. And we’re making good progress working on the details of the commercial relationship,” Duncan Tatton-Brown, Ocado’s chief financial officer told Reuters, without naming the locations.

Ocado’s experience of developing a high-tech distribution system has helped its progress toward sustainable profit growth, with its shares up more than 200 percent over the last year thanks to a string of similar technology deals with major supermarkets in France, Canada and Sweden.

The stock rose as much as 4.8 percent on Tuesday after Ocado reported third-quarter retail revenue growth in line with full-year guidance and said it had ramped up capacity in Britain with the opening of its fourth robotic warehouse this summer at Erith, near London.

Retail revenue at Ocado rose 11.5 percent to 348.6 million pounds in the 13 week third quarter ended Sept. 2, having climbed 11.7 percent in the first half. In July Ocado forecast retail revenue growth of 10-15 percent for the full year.

In May, Kroger CEO Rodney McMullen reiterated how the company plans to leverage Ocado's technology as online grocery expands.

“What we're really trying to do is to make sure that we have an overall infrastructure for digital that can support, whether it's 5% of share or 30% of share,” McMullen said on an earnings call. “If it ends up being 30% of share in grocery as digital then the Ocado, you'll have more sheds and they'll be used to take pressure off of the store, and the store will become more of a distribution point.” He said the company wants to move as quickly as possible to build Ocado facilities, noting the grocer is currently evaluating its first three sites.

 

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