Ocado bags 'transformative' US partnership in Kroger deal
The online supermarket signs a deal with Kroger that will see Ocado become the chain's exclusive partner in the United States.
Thursday 17 May 2018 17:16, UK
Ocado has signed an exclusive partnership with America's second-biggest supermarket chain - sending the UK online grocer's shares to record levels.
Ocado said its "transformative" entry into the US market centred on sharing its technology with Kroger, which had annual sales of $122bn (£90.4bn) in 2017.
Its automated systems complete the processing and packing of online grocery orders, using hundreds of robots in its UK distribution centres.
Under the partnership, the pair are looking to open three similar sites in the US this year - with a further 17 in the pipeline.
While the financial terms of the deal are yet to be fully ironed out, Ocado said Kroger would take a 5% stake in its business - worth approximately £183m ahead of Thursday's market opening.
Ocado shares were trading almost 80% higher on Thursday afternoon - reaching £10 per share at one stage - before closing 44% up at 804p.
The shares were first listed in 2010 at 167p.
It marked the fourth such agreement that Ocado has struck with grocers worldwide in just six months.
The company claimed the value of the Kroger partnership was worth more than the others in France, Canada and Sweden combined.
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Chief executive Tim Steiner, said: "Ocado's unique, proprietary and industry-leading technology is set to transform the shopping experience of consumers around the world.
"Our success as a retailer shows that we can offer customers unrivalled choice, quality and convenience, efficiently and profitably.
"The opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger's customers and create value for the stakeholders of both Kroger and Ocado.
"As we work through the terms of the services agreement with Kroger in the coming months, we will be preparing the business for a transformative relationship which will reshape the food retailing industry in the US in the years to come."
Neil Wilson, senior markets analyst at Markets.com, said: "Ocado has some protection in the deal as if they fail to hit the capacity target, Kroger will pay compensation.
"It could also lose exclusivity rights, so (it) appears Ocado has given itself some options should this not go as well as planned.
"This is a sign that the momentum is very much behind Ocado in terms of its international expansion.
"Bagging a giant US retailer is a major coup for Tim Steiner and as previously noted, we should see many more deals.
"Shares are priced for these deals to be coming thick and fast. The market reaction was exceptionally bullish with shares jumping by 40% in early trade on the announcement."