Kroger brings on big partner to fuel online grocery delivery

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Kroger brings on big partner to fuel online grocery delivery

By Deena M. Amato-McCoy - 05/17/2018
The nation’s largest supermarket company has entered into a deal that may give it an edge in the online grocery delivery wars.

Kroger Co. is extending its partnership with U.K.-based online grocery retailer Ocado, a company that has a reputation for fast deliveries, innovation, and high-quality customer service. Kroger will be Ocado’s exclusive partner in the United States, a move that will enable the grocer to leverage Ocado's smart platform, which supports online ordering, automated fulfillment and home delivery capabilities.

Specifically, Kroger will leverage Ocado’s digital and robotics capabilities to automate and better manage warehouse operations, logistics and delivery route planning. The program coincides with Kroger’s Restock program, which focuses on the company’s accelerated commitment to digital and e-commerce efforts.

This year, Kroger and Ocado plan to identify the first three sites where it will develop new, automated warehouses. The partners will identify a total of 20 sites over the first three years of the agreement.

"We are actively creating a seamless digital experience for our customers,” said Rodney McMullen, Kroger's chairman and CEO. “Our partnership with Ocado will speed up our efforts to redefine the food and grocery customer experience – creating value for customers and shareholders, alike."

The deal augments Kroger’s existing relationship with the company. The grocer already had approximately a 1% stake in Ocado. Through the new deal, Kroger will increase its existing investment by 5% in a subscription rights agreement, bringing its total investment to more than 6%.

“The opportunity to partner with Kroger to transform the way in which U.S. 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,” said Tim Steiner, CEO of Ocado Group. “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 U.S. in the years to come."

The deal marked the fourth such agreement that Ocado has struck with supermarket operators worldwide in just six months. These include Sweden's ICA, Canada's Sobey's and French supermarket operator Casino, according to CNBC.

The partnership also gives Kroger more leverage to compete as the grocery war continues to heat up. For example, Amazon is expanding its breadth in the grocery segment through its $13.7 billion purchase of Whole Foods Markets in August 2017.

On Wednesday, Target announced that it is rolling out its next-day delivery service of household essentials, Target Restock, nationwide. It’s also reducing the delivery cost, with the service now free for all Target REDcard holders, and $2.99 for all other orders (down from $4.99) — with no membership fee.

Walmart is also testing grocery delivery. The discounter’s goal is to offer the service across 800 stores by the end of the year, a move that will serve more than 40% of U.S. households. The program, which is currently available in six markets, will grow to serve more than 100 metro areas across the country.

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