UK-based Online grocer Ocado has announced its fifth international deal, with US grocery retailer Kroger. Under the terms of the agreement, Ocado's technology will be used in the US exclusively by Kroger, with the US firm also increasing its investment in the company by five percent. This will bring its investment in Ocado to more than six percent.
Identifying up to 20 sites for development
The deal gives Kroger the rights to use Ocado’s technology for grocery and other food distribution related activities in the US on an exclusive basis. In exchange, Kroger will pay monthly exclusivity and consultancy fees which will offset in part the total fees that are expected to be agreed between the two parties. The two companies are currently working to identify the first three sites in 2018 for the development of new, automated warehouse facilities, while up to a total of 20 sites will be identified over the first three years of the agreement. This highlights the scale of the deal for both companies.
Ocado’s chief executive, Tim Steiner, said: “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.”
Shifting focus to delivery options in the US
The agreement comes as retailers continue to scale up in the channel. While store pickup options have been a major focus for US retailers, including Kroger, the focus this year has shifted to home delivery. Several retailers have signed agreements with the on-demand delivery platform, Instacart, to build a presence in the channel. Over the last year, these include Costco, Sam's Club, Wegmans and Publix. This year, Walmart has also started to roll-out home delivery in partnership with several companies to 100 metro areas, Amazon is expanding its Prime Now service at Whole Foods Market, while Target is optimising its acquisition of Shipt last year to roll-out same-day delivery.
Kroger digital sales up 90% last year
Kroger has also been partnering with Instacart and other on-demand services for home delivery, with the service available in just under 900 locations. Along with its store pickup model, ClickList, this helped the retailer to grow its digital sales more than 90% during its 2017 financial year. This year, it plans to add around 500 additional stores offering the ClickList service. The future of its existing delivery partnerships remains unclear, although they are likely to be in place for some time as it will take several years for the partnership with Ocado to scale up.
Source: IGD Research
Ocado’s growing number of international partners
The deal with Kroger is the latest in a number of tie-ups announced by Ocado in recent months. Earlier this month, it announced a deal to support Swedish supermarket ICA’s online grocery business, following deals with Canada-based Sobeys and France-based Casino. The retailer also announced an agreement with an unnamed partner last June, making Kroger its fifth international partner.
This latest deal for Ocado means that is has entry into the world’s biggest market, and its role as a provider of retail technology is continuing to gain momentum.
To understand more about how Ocado operates, subscribers can see our insight presentation about its Strategic Outlook.
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