LONDON/LOS ANGELES: US supermarket chain Kroger Co struck a deal with British online grocer Ocado to ratchet up its delivery business with the construction of robotically operated warehouses, upping the ante in the battle with Amazon.com Inc and sending Ocado shares rocketing.
The US grocery industry is dominated by Walmart Inc and Kroger but has been in upheaval since last summer, when Amazon’s $13.7 billion deal for Whole Foods sent supermarkets scrambling to match the online retailer on home delivery.
The Kroger deal announced on Thursday is Ocado’s first in the United States and the British company’s fourth major agreement with retailers in six months.
Shares of Ocado, an online grocery retailer known for using robots rather than people to process and pack orders , soared as much as 80 per cent to an all-time high. Kroger shares were last up 1.4 per cent, with investors reassured by the US company’s saying the move would not dampen expected earnings for 2018 and 2019.
Kroger Chief Executive Officer Rodney McMullen called the partnership “transformative” and told Reuters that it accelerates the company’s efforts to give customers anything, anytime, anywhere.
While Cincinnati, Ohio-based Kroger currently offers online grocery delivery service, orders are filled at individual stores and delivery is handled in-house by Kroger and by third-party providers Instacart and Target Corp-owned Shipt. Kroger’s deal with Ocado, which is exclusive, won plaudits on Wall Street.
“The Ocado partnership is the best investment the Kroger Company’s ever made in the last 25 years,” said Burt Flickinger, managing director of consultancy Strategic Resource Group.
“Ocado is a consumer’s dream and a competitor’s nightmare, and the competitor that’s going to get caught in the crossfire is clearly Amazon,” he said.
US supermarkets fear Amazon will apply its distribution know-how to Whole Foods by transforming existing stores into a grocery delivery network with help from low-cost “gig economy” drivers. Amazon is already offering free two-hour delivery from some US stores for members of its loyalty club Prime.
Yet experts have said that even Amazon, which still operates mostly human-staffed warehouses for its Fresh grocery delivery service, still is figuring out the right model.
“They’re working their path to the customer in two different ways, from very different starting points,” Tom Furphy, former vice-president of consumables and AmazonFresh and now CEO of Consumer Equity Partners, said of Kroger and Amazon.
“The most critical consequence of today’s news is the need for other major US players to react,” said Jefferies analyst James Grzinic. “The risk is that today’s news will accelerate that shift, and on less rational terms.”
Britain was one of the first countries to see widespread adoption of online grocery shopping, giving its retailers a head start in developing technology to deal with the challenges of delivering food, especially fresh and frozen goods. — Reuters
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