UK online grocer surges

By Paul Sandle

UK online supermarket Ocado has clinched a game-changing deal with Kroger as its exclusive partner in the US, securing its entry into the world’s biggest market and sending its shares soaring more than 80% at one stage.

The agreement, Kroger’s response to the competitive threat posed by Amazon’s purchase of Whole Foods, takes Ocado’s home-delivery technology into the US for the first time and marks the fourth major deal it has signed with supermarkets around the world in six months.

Ocado’s chief financial officer Duncan Tatton-Brown said the new partnership with the world’s third largest retailer was “transformational”.

“The scale of the proposed transaction, and therefore the quantum of its economics, is wholly different to those we’ve already signed,” he said.

Retailers around the world are experimenting with different ways of delivering online grocery orders, seeking to balance speed with cost as e-commerce takes off for food.

Ocado’s unique software and hardware automates the processing and packing of online groceries, using hundreds of robots rather than people to pull together orders quickly in fulfilment centres.

The UK firm said its Ocado Smart Platform (OSP) technology is the most advanced in the world while sceptics have criticised its high-tech approach as too costly and complicated.

US players such as Walmart are focusing on cheaper low tech warehouses that are closer to customers.

Mr Tatton-Brown said he thought Kroger, which had sales of $122bn in its last financial year, was the best-positioned grocer to succeed in the US and it will end discussions with other US-based retailers.

“The opportunity for a business like Kroger is huge, and I think we have the best potential partner in the US,” he said.

“They are ambitious, they are capable and together we hope they can transform their industry.”

Shares in Ocado, which listed in 2010, rose more than 80%, to a record high before paring back to close 43% ahead.

Kroger, which already held a 1% stake in Ocado, will buy new shares equivalent to 5% valued at £183m.

Founded in 2000 by three former Goldman Sach’s bankers, Ocado has licensed OSP to grocers operating in markets including ICA in Sweden, Sobeys in Canada and Casino in France.

- Reuters

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