Kroger paying $247M to license Ocado online home-delivery technology

Gladys Abbott
May 18, 2018

Shares in Ocado are up by more than 250% over the last six months, as the company has finally delivered on expectations of an global expansion. It comprises access to Ocado's physical infrastructure solutions to run efficient warehouse operations for the single pick of products, together with the end-to-end proprietary software applications required to operate an online grocery business from user interfaces, through warehouse operating and control systems, to logistics, route planning and optimization.

If the Ocado partnership gives Kroger the confidence to bring delivery in-house, "that will be disastrous for Instacart", said Neil Saunders, managing director of GlobalData Retail.

Kroger and Ocado are working to choose the first three sites for 2018 for development of automated warehouse facilities in the U.S. Ocado said up to a total of 20 facilities will be identified for development over the first three years of the agreement.

Ocado has always been considered a weak link in the supermarket sector by some analysts who brand it grossly overvalued. Over the years, Ocado's technology and logistics prowess has been seen by certain bears as an expensive distraction in the United Kingdom, despite the likes of Morrisons knocking on its doors to operate an online business.

Kroger will take a 5% share in Ocado as part of the deal, subscribing for up to 33,146,200 new ordinary shares at a value of £183mn. It has also positioned them in their long term battle against Walmart and Amazon.

Shares in the group, which listed in 2010, jumped over 50 percent in early Thursday to trade at a record high. It has made similar deals with Morrisons in the U.K., Group Casino in France, Sobeys in Canada and ICA in Sweden.

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Industry analysts called the partnership with Ocado a big win for Kroger and said it will turn up the heat on its grocery competitors in the online realm.

Ocado chief executive officer Tim Steiner raked in about £34m from his 1.6pc stake. 'This is clearly a transformative deal for Ocado, and one that is on a completely different scale to those announced in the past'.

It has even said it will pay compensation if it fails to hit the capacity targets the two retailers have agreed.

Before Thursday's deal, Ocado's stock was trading on a heady multiple of 2,250 times its current earnings.

The surprise deal and jump in the share price caught out many hedge funds betting the next move would be down.

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