Ocado partnering with Kroger
US-based retailer Kroger will be using Ocado’s Smart Platform technology to power its online food and grocery deliveries.
In a statement issued today (17 May), Ocado said that having signed the partnership agreement with Kroger it will now “discontinue discussions with other US-based retailers“.
As part of the deal, Kroger will pay monthly exclusivity and consultancy fees which Ocado said “will offset in part the total fees that are expected to be agreed between the two parties”.
Ocado added: “An overall services agreement will be negotiated to provide for the drawdown of multiple CFCs [customer fulfilment centres] across the US, on the basis of standard Ocado OSP terms.”
Kroger is also buying 5% of the existing issued share capital of Ocado at a value of £183m.
Kroger and Ocado said that they are already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the US, and they plan to identify up to a total of 20 over the first three years of the agreement. Ocado added that, in the event of a failure to commit to the target capacity, Kroger will pay compensation to Ocado.
Tim Steiner, CEO of Ocado, commented: “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 US in the years to come.“
Ocado said that it expects that the structure of the terms that it will agree with Kroger will be “broadly similar per CFC” to those agreed with its existing international partners: Groupe Casino, in France; Sobeys, in Canada; and ICA, in Sweden. But Ocado did add: “Ocado and Kroger will, however, explore value neutral alternatives to our normal fee structure to reduce the initial capital requirements for Ocado compensated by an appropriate reduction in ongoing fees.”
The deal with Kroger is a highly significant development for Ocado, as analysts have seen “breaking into the US” as a key milestone. The city has reacted positively to the announcement and the Ocado sharea price rose 47% to 814p in early trade in London.
