Kroger makes strong move in grocery e-commerce wars

  (Photo: Shutterstock)

(Photo: Shutterstock)

If you were beginning to think Amazon and Walmart were about to win the last-mile, e-commerce grocery wars, things just got a lot more interesting. Kroger and online supermarket Ocado announced an exclusive partnership agreement in the United States that will accelerate Kroger's creation of a seamless shopping experience for America's families. The move gives the supermarket giant a pathway to create its own delivery network as the grocery store wars escalate.

The alliance will bring to the U.S. for the first time the unparalleled technology underpinnings of the Ocado Smart Platform, which includes online ordering, automated fulfillment and home delivery capabilities.

As part of the partnership agreement, Kroger will increase its existing investment in Ocado by five percent in a subscription rights agreement. This will bring the company's total investment to more than six percent. Ocado will partner exclusively with Kroger in the U.S., enhancing Kroger's digital and robotics capabilities and helping expand its seamless coverage area to provide every family in America with the convenience of shopping for anything, anytime and anywhere.

"We see Ocado as an innovative, exciting and transformative partnership in pursuit of our Restock Kroger vision, to serve America through food inspiration and uplift," said Rodney McMullen, Kroger's chairman and CEO. "We are actively creating a seamless digital experience for our customers. Our partnership with Ocado will speed up our efforts to redefine the food and grocery customer experience – creating value for customers and shareholders alike."

"Ocado's unique, proprietary and industry-leading technology is set to transform the shopping experience of consumers around the world," said Tim Steiner, CEO of Ocado Group. "Our success as a retailer shows that we can offer customers unrivalled choice, quality and convenience, efficiently and profitably. 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. 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."

Ocado’s technology automates the processing and packing of online grocery orders, using hundreds of robots in technological advanced order fulfillment centers, according to Forbes. Ocado has recently been working on licensing their technology solutions and had created partnerships with Morrisons, Grupe Casino and Sobeys in Canada. The Kroger deal takes this to a whole new level. As part of the deal, Kroger will take a stake in the British company, equivalent to 5 percent of the existing share capital valued at £183 million (about $247 million USD).

Kroger and Ocado are already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the U.S., and will identify up to a total of 20 over the first three years of the agreement.

"We look forward to innovating together with Ocado to provide our customers the best possible online and in store experience," said Alex Tosolini, senior vice president of business development. "Through Restock Kroger, we will continue expanding partnerships to create customer value."

For Kroger, the partnership is about serving customers who are shifting their grocery-buying habits, McMullen said.

"It's about using our technology and data so that customers can move back and forth," he said in an interview Thursday. "It really accelerates our ability to offer a seamless experience."

A key for Kroger will be maintaining market share as the company waits for the new distribution centers to be built. Two years is a long time, particularly as Amazon starts pressing the gas pedal on its integration of Whole Foods.

Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.