Kroger seeks e-commerce profit boost by closing distribution hubs
Kroger will rely more on third-party platforms and stores to fulfill online deliveries in a move to increase operating profits.
The grocery conglomerate expects to drive $400 million e-commerce operating profit in 2026 by updating its e-commerce plan to rely less on a leading-edge automated warehouse concept known as a customer fulfillment center (CFC).
[READ MORE: Kroger gives CIO responsibility for new e-commerce unit]
Introduced in 2018 in partnership with U.K.-based online grocer Ocado Group, the CFC model combines vertical integration, machine learning, and robotics with affordable and fast-delivery service for fresh food.
CFC facilities leverage proprietary technology solutions focused on artificial intelligence (AI) and advanced robotics and automation to create more seamless and efficient fulfillment, picking and delivery capabilities for enhanced digital commerce.
Following a comprehensive review, Kroger identified opportunities to optimize its fulfillment network by closing CFC facilities in Pleasant Prairie, Wis.; Frederick, Md.; and Groveland, Fla. in January 2026, while monitoring the remaining facilities' performance.
The retailer previously closed three CFC cross-docking facilities (known as “spokes”) in March 2024. Kroger expects to incur impairment and related charges in the third fiscal quarter of 2025 of approximately $2.6 billion as a result of these closures and the automated fulfillment network not meeting financial expectations.
Expanded delivery partnerships
As it shutters some of its CFCs, Kroger will increase its involvement with several well-known online delivery providers. The company, which began offering online delivery in collaboration with grocery technology company Instacart in 2017, will be one of the first retailers to offer customers access to the Instacart AI Assistant - Cart Assistant, which it will offer to customers shopping on the Kroger iOS mobile app.
Cart Assistant is based on agentic AI and designed to help customers find meal recommendations, build carts faster, and plan meals through a personalized experience.
Kroger also recently broadened its collaboration with DoorDash, enabling customers to shop its full grocery assortment from nearly 2,700 stores. In addition, Kroger announced the upcoming launch of a new joint offering with Uber Eats Marketplace to be the first retailer on the platform allowing customers to order grocery items alongside orders from hundreds of thousands of restaurants.
According to Kroger, these expanded partnerships will also create new opportunities for CPG companies to reach and engage its customers with relevant advertising via its retail media business.
"E-commerce remains a core part of serving customers who want better value, wide selection and flexible ways to shop," said Ron Sargent, Kroger chairman and CEO. "We are building on a strong foundation with five consecutive quarters of double-digit e-commerce sales growth and increased profitability improvements. We are taking decisive action to make shopping easier, offer faster delivery times, provide more options to our customers, and we expect to deliver profitable sales growth as a result."
In geographies where Kroger sees higher density of demand, the company will continue to leverage of automated customer fulfillment to increase customer engagement, capacity and improve productivity and profitability.
Kroger will also pilot capital-light, store-based automation in high-volume geographies in an effort to improve fulfillment capabilities and elevate the in-store customer experience.
Cincinnati-based The Kroger Co. operates nearly 2,800 stores in 35 states across banners including Kroger, Mariano’s, Fred Meyer, Ralphs and Harris Teeter.
