Ocado entering United States market through technology deal with Kroger

Ocado entering United States market through technology deal with Kroger

Kroger is to pay monthly exclusivity and consultancy fees to Ocado which will partially offset in part the total fees that are be agreed between the two parties. Over the first three years of the agreement they are to identify a further 20 sites.

If the Ocado partnership gives Kroger the confidence to bring delivery in-house, "that will be disastrous for Instacart", said Neil Saunders, managing director of GlobalData Retail.

Some analysts and grocers have questioned how well the Ocado model is suited to the US market given its much more disperse population compared to densely populated Britain.

Ocado uses purpose-built robots, which are capable of picking a 50-item order in minutes, to man its automated warehouses, Paul Clark, Ocado Chief Technology Officer, wrote in the Harvard Business Review. Kroger will grow its existing investment in Ocado by 5 percent in a subscription rights agreement, bringing its total investment to more than 6 percent.

The new agreement is also one of a series of partnerships that Ocado has made with retailers around the world in order to share its innovative technology. "Kroger has been impressive in its efforts to explore innovation and stand up to threats from Amazon and Walmart in grocery". The Kroger partnership represents the fourth agreement Ocado has made during the past six months, although this represents its first foray into the USA market.

Kroger shares ended the US Thursday trading session 1.44% higher at $26.30.

FTSE soars on Ocado US deal news
GETTYFTSE soars on Ocado US deal news

Ocado was also upbeat on the deal and its own abilities.

Since 2014, Ocado has been exploring selling its technology and logistics expertise in a service model with an external retailer, and in recent months it has landed partnerships with Sobeys and Casino, Sheehan noted.

OCDGF stock was up 39% and KR stock was up 2% as of Thursday morning.

"We think this is just about as positive a deal as could have been expected to have been announced by Ocado", analysts at Barclays said. Following the announcement the share price increased to 995 pence, before ending the day at 797 pence.

Kroger demonstrated its commitment to the Anglo-American alliance by subscribing for 33.1mln Ocado shares worth £183mln, which would give it a 5% share of the United Kingdom business.

Exposed hedge funds included GMT Capital, Hunt Lane Capital and London-based Marshall Wace.

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