Ocado Gets $350 Million From Kroger for Warehouse Closures
Kroger Shifts Toward Completing Online Orders From Its Store Network
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Ocado Group Plc will receive a one-time cash payment of $350 million from Kroger Co., more than previously announced, after the U.S. grocer decided to close three automated warehouses and scaled back plans for a wider rollout.
Kroger, the biggest customer for U.K.-based Ocado鈥檚 warehouse technology with eight fulfillment centers, announced the closures last month, saying its network was falling short of financial expectations. The grocer is taking a $2.6 billion impairment as it shifts toward completing online orders from its store network 鈥 rather than the Ocado warehouses 鈥 in some areas.
Ocado said Dec. 5 it will continue to work with Kroger on its five remaining sites, with a sixth in Phoenix due to open next year. A fulfillment center planned for Charlotte, N.C., won鈥檛 open. The payment includes $250 million already announced by Ocado, and will be paid in January. Ocado also reaffirmed its priority of turning cash flow positive during its 2026 financial year on continued growth and 鈥渞igorous cost and capital discipline.鈥
The shares climbed as much as 16% in early London trading, the biggest intraday gain since July. The stock is still down by about a third this year.
READ MORE:听Kroger Cuts Guidance as Shoppers Get Choosy About Spending
Kroger鈥檚 decision left their partnership, which听began in 2018听and was expected to reach 20 warehouses, in limbo. Ocado CEO Tim Steiner has previously said the company could become the 鈥淭esla of grocery,鈥 but has struggled to show the capital-intensive technology is worth the investment.
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Ocado鈥檚 other deals with grocers include Aeon of Japan, France鈥檚 Casino, Coles in Australia and Canada鈥檚 Sobeys. But Kroger was key to its sales pitch. It is not clear when an exclusivity deal with Kroger will end, though Steiner indicated Ocado sees more growth potential in the U.S.
Still, it follows a string of setbacks for Ocado, which has been selling its warehouse technology to power online grocery shopping since it was founded in 2000. Like Kroger, British supermarket Morrisons also said last year it would reduce its use of Ocado鈥檚 U.K. warehouses in favor of completing orders in its stores, where it uses Ocado鈥檚 in-store software.
Kroger ranks No. 31 on the听Transport Topics Top 100 list of the largest private carriers听in North America, and No. 3 on the听TT grocery list.
