Ocado signs huge US deal with Kroger Supermarkets. Shares pop 50%

• Kroger signs exclusive US deal Ocado.
• Kroger is also buying a 5% stake in Ocado for £183 million.
• Kroger is hoping to build three next-generation warehouses with Ocado this year and aiming for 20 new warehouses over the next three years.
• Ocado CEO calls the partnership “transformational,” although the exact financial impact isn’t clear.
• Ocado shares jump 50%.

US grocery giant Kroger has signed an exclusive deal with Ocado, the British online grocer and platform provider that markets clever supply chain and fulfilment technology. You may well ask who is Kroger? Well they are big, or larger than big. Kroger is the second largest grocery business in the US, with 2,800 stores and sales of $122 billion last year. Competition from Amazon and discounters such as Lidl saw its share price fall by over 40% last year to a four-year low and Kroger announced a $9 billion strategy called “Restock Kroger” last year aimed at modernising the company with technology.

Ocado said in a statement on Thursday that it has signed a deal allowing Kroger to use its technology exclusively in the US. Kroger will pay undisclosed monthly exclusivity and consultancy fees, which will offset the total cost of the deal that has yet to be agreed. Kroger is buying a 5% stake in Ocado for £183 million under the terms of the deal.

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. The company’s proprietary warehouse technology uses robotics and automation to drive high levels of efficiency when packing and shipping orders. The Verge had an interesting article on the technology and robots used by the new Ocado fulfilment centre in Andover.

See The Verge Andover

Kroger will use Ocado’s “Smart Platform” technology to develop three new automated warehouses across the United States this year that will use robots to fulfil orders. The pair is targeting 20 new warehouses across the US over the next 3 years.

Ocado CEO Tim Steiner said in a statement: “The opportunity to partner with Kroger to transform the way in which US customers buy groceries 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 shares, which are listed on the FTSE 250 index in London, jumped by almost 50% on news of the deal. The rally is likely helped by a squeeze on short sellers who have bet against the company and are now having to cover their losses by buying back shares.