CINCINNATI — Kroger Co. has upped its investment in U.K. digital grocer Ocado as part of an exclusive agreement that will bring Ocado’s automated fulfillment network to the United States to bolster Kroger’s home delivery capabilities.
Kroger currently offers a click-and-collect system at more than 1,000 stores, and it has partnered with Instacart and other services on home delivery in selected markets.
The agreement, announced May 17, allows Kroger to leverage Ocado’s Smart Platform technology, which offers online ordering, automated warehouse fulfillment and delivery logistics.
Under the deal, Kroger will establish a network of up to 20 automated fulfillment centers over the next three years, with the first three locations to be identified this year.
“We are actively creating a seamless digital experience for our customers,” Rodney McMullen, Kroger’s chief executive officer, said in a statement. “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 has no physical stores in the United Kingdom. It delivers groceries via van from its network of automated warehouses. In addition, it has partnered with U.K. grocers including Morrisons and Waitrose to offer online ordering and home delivery. Ocado also has deals with French supermarket chain Casino, Sobeys in Canada and ICA in Sweden.
Ocado’s distribution facilities utilize robots to fill orders. Operations are guided by proprietary technology designed to optimize everything from picking and packing orders to delivery routes.
Ocado asserts that it spends less than competitors do to deliver groceries to customers, and that its automated fulfillment network, though costly to build, is more efficient than the store-fulfillment model favored by Walmart and other supermarket rivals.
As part of the partnership agreement, Kroger will increase its stake in Ocado to about 6% via a subscription-rights agreement.
“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,” McMullen said.
The deal is seen as a game changer for Ocado, which had been trying to crack the U.S. market and which has faced skepticism from investors worried about the high up-front costs of its digital vision.
Optimists said the Kroger deal might give Ocado the scale it needs to demonstrate that it has the “killer app” for online grocery.