Ocado, the U.K. online supermarket operator, has inked a deal with Kroger in which it will be its exclusive partner in the U.S., giving it an entry in the U.S. market.
Reuters, citing Ocado's Chief Financial Officer Duncan Tatton-Brown, reported that with the deal, Ocado's home delivery platform will be available in the U.S. It's the fourth deal Ocado has reached with supermarket operators across the globe. "The scale of the proposed transaction, and therefore the quantum of its economics, is wholly different from those we've already signed," the executive said, noting that Kroger was in the best position to be successful in the U.S. market, although Ocado plans to have talks with other retailers based in the U.S.
News of the partnership, which Tatton-Brown called "transformational," sent shares up more than 50 percent in overseas trading Thursday (May 17). Kroger gets a stake in the company as part of the deal which is equal to about 5 percent of existing share capital. The stake is valued at $247.5 million, noted Reuters.
To offer delivery of food in the U.S. with Ocado, Kroger will find 20 or more sites in the U.S. to build automated warehouse facilities. The CFO noted that that's more than all of the facilities combined that Ocado has built or is gearing up to build because of other partnerships. The company uses technology to automate processing and packing of online grocery orders, using robots in tech-advanced warehouses. Kroger and Ocado are working together to find the first three sites that will open this year. As for the impact to earnings for Ocado, Tatton-Brown said it should be neutral to full-year 2018 earnings.
In an effort to stay competitive with Amazon.com, which has entered the grocery market with its purchase of Whole Foods Market last year, Kroger has been making strategic moves. Earlier this year CNBC, reported that Kroger was mulling an acquisition of Boxed, the online wholesaler startup.