Kroger Buys Stake in Online UK Grocer Ocado

Kroger Co. has signed an agreement with UK-based Ocado Group Plc to bring that grocer’s platform of home delivery into the U.S., the two companies jointly announced on Thursday. KR shares were up just under 1% in trading that was above average for the stock. Ocado stock has surged by 50% in Thursday morning trading in London.

Ocado, a FTSE 250 index constituent calls itself the largest dedicated online grocery retailer in the world, and has developed what it calls a unique operating solution that is end to end for only grocery retail based on IP and proprietary technology suitable for its own business as well as for the commercial partners of the grocer.

The move arrives as Kroger has made a commitment to spend some savings that were generated by the corporate tax reform, on different digital initiatives. Several analysts backed the decision last month by Kroger to invest in those initiatives calling them smart reinvestments that in the long-term have positive impacts.

Kroger has started those efforts already and is making progress. The company rolled out different apps that integrate with coupons, rewards and recipes. In addition, there are platforms such as home delivery services ClickList and the pickup services Harris Teeter ExpressLane, which are in more than 1,000 locations, said one analyst.

The supermarket operator based in Cincinnati, Ohio has suffered greatly from the reach of Amazon.com into having brick-and-mortar supermarket locations with its purchase in August of 2017 of Whole Foods Market for $13 billion.

In addition, KR shares are being pressured by traditional physical store supermarket operators such as Target and Walmart, which have bolstered their one grocery businesses. Shares of KR are off by almost 13% during the last 12 months.

Ocado’s technology is able to automate processing and packing of grocery orders online, using a series of robots in its fulfillment centers. Kroger will begin with three sites in 2018, and has a goal of up to 20 fulfillment centers for the first three years of this arrangement said Ocado.

Kroger will buy what is equal to 5% of the company in the UK that has an estimated value of $256 million.

Together with other Kroger restructuring efforts, the investments in technology by the grocery are looked at as a positive for the long-term.

Several analysts have said that for investors that look at the long term, KR shares look interesting at their current price.



Leave a Reply