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American grocer partners with Ocado for automated fulfillment

17 May 2018

The Kroger Co and Ocado have announced an exclusive partnership agreement in the United States that will bring the Ocado Smart Platform, which includes online ordering, automated fulfillment and home delivery capabilities to the USA.

As part of the partnership agreement, Kroger will increase its existing investment in Ocado by 5% in a subscription rights agreement. This will bring the company's total investment to more than 6%. Ocado will partner exclusively with Kroger in the U.S., enhancing Kroger's digital and robotics capabilities and helping expand its seamless coverage area to provide every family in America with the convenience of shopping for anything, anytime and anywhere.

Kroger and Ocado are already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the U.S., and will identify up to a total of 20 over the first three years of the agreement.

Kroger's revenues in 2017 were c. $122.7 billion.

Thomas Cullen, consultant at Transport Intelligence said: “The scale of the agreement even dwarfs Ocado’s own retail operations in the UK. The statement released by the two companies states they “will identify up to a total of 20 over the first three years of the agreement”. It is unclear how big these facilities will be, although presumably they will conform to the template pioneered in its fulfilment centres in southern England.

“Breaking into the US market is crucial for Ocado. It will deliver the scale that the technology provider needs to expand across the world. Ocado can now claim to be one of, if not the, leading logistics technology provider in internet retailing. The obvious comparison is with Amazon against which it will compete in the US. However, as far as conventional logistics service providers are concerned, whatever is the outcome of such a competition they will lose as two powerful technology players take the high ground of retail logistics in developed markets.”

Kroger's view

"We see Ocado as an innovative, exciting and transformative partnership in pursuit of our Restock Kroger vision, to serve America through food inspiration and uplift," said Rodney McMullen, Kroger's chairman and CEO. "We are actively creating a seamless digital experience for our customers. Our partnership with Ocado will speed up our efforts to redefine the food and grocery customer experience – creating value for customers and shareholders alike."

Ocado's view

"Ocado's unique, proprietary and industry-leading technology is set to transform the shopping experience of consumers around the world," said Tim Steiner, CEO of Ocado Group. "Our success as a retailer shows that we can offer customers unrivalled choice, quality and convenience, efficiently and profitably. The opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger's customers and create value for the stakeholders of both Kroger and Ocado. As we work through the terms of the services agreement with Kroger in the coming months, we will be preparing the business for a transformative relationship which will reshape the food retailing industry in the U.S. in the years to come."