Ocado to enter U.S. market with 'transformative' Kroger deal

Roman Schwartz
May 17, 2018

The online supermarket said the deal means Kroger will take a five per cent stake in the company and gives the U.S. business the rights to use Ocado's technology for grocery and other food distribution related activities in the United States on an exclusive basis, in return for "monthly exclusivity and consultancy fees".

Tim Steiner, Ocado's CEO, used the announcement to underline his belief "Ocado's unique, proprietary and industry-leading technology is set to transform the shopping experience of consumers around the world".

Now, the two companies are working to identify the first three sites for the development of new, automated warehouse facilities and will identify up to 20 sides over the first three years of the agreement.

It also said that Kroger, which recorded sales of US$122bn during 2017, making it the largest grocery retail chain in the USA in terms of revenue, was best placed to retain that market-leading position. It will now discontinue discussions with other US-based retailers.

UK-headquartered Ocado was founded by former Goldman Sachs employees in 2000 as an online-only supermarket, but has in recent years sought to position itself as a technology provider to other supermarkets.

Ocado was created in 2000 in the UK.

Ocado's stock market surge pushed the value of the company above £5 billion ($6.8 billion) on Thursday.

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Ocado's Chief Financial Officer Duncan Tatton-Brown said the partnership was "transformational".

Brittain Ladd, a former Amazon executive and supply chain expert, was hired by Kroger previous year to evaluate the grocer's digital and supply chain strategies.

Its automated systems complete the processing and packing of online grocery orders, using hundreds of robots in its United Kingdom distribution centres.

Ladd said implementing Ocado's technology would be "a way to greatly reduce their supply chain costs" and would "allow Kroger to probably close almost half of their older distribution centres".

'After years of starving investors of the worldwide deal they so desperately craved, Ocado has been rattling off transformational tie-ups at an astonishing rate in the last few months, ' said Connor Campbell, financial analyst at Spreadex.

The Kroger deal is "an unmitigated positive in our eyes", Barclays analysts said in a research note.

The Kroger deal is the latest in a string of global tie-ups for Ocado in recent months.

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