Ocado has announced a partnership with Sobeys to develop its online grocery business in Canada.
This is Ocado's first venture into North America, and the third international partnership for the Ocado Smart Platform.
Sobeys is Canada's second largest food retailer, generating sales of C$23.8 billion in 2017. It operates more than 1,500 stores across the country under brands including Sobeys, Safeway, FreshCo, IGA and Thrifty Foods. Ocado will allow Sobeys to use its ecommerce platform to expand its online business into Ontario, building on its successful ecommerce business in Quebec. This will include front-end website functionality, last-mile routing management technology and the construction of Ocado's latest generation automated warehouse. The Andover style robot warehouse will be built in Toronto over an estimated two-year time frame. Ocado will also consider developing more centres in dense urban areas in the future.
Although Sobeys will pay an initial fee to Ocado for its services, the transaction is expected to be earnings-neutral in the current financial year due to the cost of establishing the partnership offsetting the initial fees payable. Nevertheless, the deal is expected to create significant long term value for Ocado, with further fees payable by Sobeys linked to future capacity and performance. Profitability is expected to grow as of 2019.
Source: IGD Research
Momentum growing in the Canadian grocery ecommerce channel
The development of this facility aligns with the timescales for ecommerce development outlined by Sobeys last year. It is currently into the second year of a three-year turnaround plan, Project Sunrise, and is prioritising embedding a new functional-led structure and launching its discount format into Western Canada. Although the retailer has indicated that it has time to develop its ecommerce strategy, given the relatively slow pace of channel development in Canada, Loblaw's recently launched partnership with Instacart and Amazon's acquisition of Whole Foods Market last year have potentially shortened timelines for development. Metro is expected to launch its ecommerce operation in Toronto later this year while Walmart has partnered with Penguin Pickup to develop its online grocery business in the city.
Ocado's role as a provider of retail technology has recently gained momentum. The Sobeys partnership is Ocado's second international deal in two months, following its tie-up with French supermarket Groupe Casino late last year. The retailer also announced an agreement with an unnamed partner last June.
Tim Steiner, chief executive of Ocado, said "We are delighted to be working with one of the leaders in North American grocery retailing. Sobeys is a highly successful and much admired Canadian business and we are proud that they have chosen Ocado Solutions to partner with to build their online grocery business".
Learn more about Ocado and Sobeys by signing up to our free newsletter here
Join a Retail Safari in Canada with our experts
Use our expertise to unlock store, category and digital innovation across leading North American cities, including Toronto and Vancouver, through our analyst led study tours.
Find out more »