Ocado and Kroger in retail technology deal

Ann Santiago
May 18, 2018

As part of a newly inked alliance, Kroger (KR) is harvesting the ordering, fulfillment and home delivery capabilities of United Kingdom -based online grocer Ocado, ramping up its arsenal against grocery rivals Walmart (WMT) and Amazon (AMZN).

Ocado, a FTSE 250 index constituent calls itself the largest dedicated online grocery retailer in the world, and has developed what it calls a unique operating solution that is end to end for only grocery retail based on IP and proprietary technology suitable for its own business as well as for the commercial partners of the grocer. As part of the deal, Kroger will also acquire Ocado shares at a value of £183m.

The Cincinnati-based grocer said it's already working with Ocado to identify three sites for the development of new, automated warehouses in 2018.

"We are actively creating a seamless digital experience for our customers", Kroger CEO Rodney McMullen said in a statement.

He said Kroger, which had sales of $122 billion in its last fiscal year, was the grocer best-positioned to succeed in the USA sector.

There are losers in the rapid ascent of the share price - the short sellers betting that Ocado would stumble and fall with the onslaught of the big beasts of online retail, led by Amazon.

Ocado's Chief Financial Officer Duncan Tatton-Brown said the partnership was "transformational". Kroger said up to 20 new sites will be identified in the first three years of the agreement.

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

Bearish hedgies ate humble pie, with those shorting Ocado registering as much as a £282m paper loss at one point in the day, before shares eased back.

Ocado shares were trading nearly 80% higher on Thursday afternoon - reaching £10 per share at one stage. "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 was founded in 2000 by Tim Steiner and two other former Goldman Sachs bankers and is best known as an online grocery chain delivering premium products. Kroger will also take a 5% stake in Ocado.

It took a mega deal with a USA grocer for Ocado to prove that it's no basket case.

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