������ý

Ocado has struggled to convince investors that its capital-intensive technology is viable. (Hollie Adams/Bloomberg)

[Stay on top of transportation news: .]

Ocado Group Plc shares tumbled the most since February after Kroger Co. questioned the future of their partnership, raising concerns that the major U.S. grocer could close some existing automated warehouses to cut costs.

Britain’s Ocado has been selling expensive automated warehouse technology to power online grocery shopping since it was founded in 2000, and has tied up with some of the world’s biggest supermarkets like Kroger and Sobeys Inc.

Kroger ranks No. 31 on the��Transport Topics Top 100 list of the largest private carriers��in North America, and No. 3 on the��TT grocery list.

CEO Tim Steiner, a fierce proponent of the idea that robot-operated warehouse are worth the investment, has previously said the company could become the “Tesla of grocery” but Ocado has struggled to convince investors that its capital-intensive technology is viable.

One of the challenges it faces is that some supermarkets are favoring fulfilling online orders themselves from their stores.

Shares of Ocado slumped as much as 12% in London on Sept. 12 after Kroger said it’s assessing some of its facilities to improve profitability.

READ MORE:��Kroger Raises Outlook on Healthy Grocery Demand

“We’re using our stores very heavily now to fulfill e-commerce orders every day,” Ron Sargent, interim CEO of Kroger, told analysts on a call Sept. 11. “We are taking a hard look at some of our automated facilities.”

Image

Sargent��

Kroger — Ocado’s biggest customer — can offer delivery in under two hours from 97% of its stores via its delivery partner Instacart, Sargent said, adding that a strategic review which includes its e-commerce business is nearly complete.

It currently operates eight automated sites, known as customer fulfillment centers, and two additional sites are scheduled to launch next year.

“Consumer preference for quick delivery makes store-based e-commerce a more appropriate choice,” said Bloomberg Intelligence analyst Charles Allen.

“Layering capital-intense robot warehouses into a market with existing stores seems almost certain to dilute Kroger’s return on capital, making Ocado’s solution an ultra-efficient yet overly expensive proposition for anything other than very dense population areas,” he added.

Ocado’s bonds slumped. Its 450 million pound ($609 million) high-yield notes due Aug. 2029 fell 3.6 pence on the pound to 99.6 pence, according to data compiled by Bloomberg, poised for the biggest daily drop since they were issued last year.

“We view Kroger’s earnings call commentary as a negative read-across for Ocado,” Morgan Stanley analysts including Luke Holbrook said in a note, adding that it implies an increased risk that some Ocado sites could be closed.

Ocado also has a grocery delivery joint venture in the U.K. with Marks & Spencer Group Plc.