Shares in Ocado, the online supermarket and technology group, dropped sharply on Friday after its U.S. partner Kroger suggested it might reduce its investment in automated warehouses. Ocado’s stock was down 13% at 1140 GMT, extending its losses over the past year to 18%, following comments from Kroger’s Chairman and interim CEO, Ron Sargent. Sargent stated that the company is conducting a “site-by-site” review of its automated fulfillment network, which was built in partnership with Ocado.
Sargent’s remarks have raised concerns that Kroger might be backing away from its plans to expand its network of robotic customer fulfillment centers (CFCs), a key component of Ocado’s international growth strategy. Sargent, who took over from long-time boss Rodney McMullen in March, began a strategic review of the company’s e-commerce operations in June.
On Thursday, he told investors, “We’re examining all aspects of our business to drive greater efficiency, including a full site-by-site analysis of our Kroger automated fulfilment network.” He added, “We are taking a hard look at some of our automated facilities,” and also emphasized the importance of using existing stores for e-commerce deliveries.
Ocado and Kroger signed a deal in 2018 to help the U.S. retailer build its delivery business with the construction of robotic warehouses. The initial agreement identified 20 U.S. locations for these warehouses, making Kroger Ocado’s most important partner. However, only eight sites have been opened so far, with two more in Charlotte and Phoenix not scheduled to open until early in Ocado’s 2025-26 financial year, which begins in December.
Barclays analysts noted that Sargent’s comments indicated a cautious approach to CFC investment, with a seemingly greater focus on utilizing existing store locations. An Ocado spokesperson responded by highlighting that Kroger’s recent quarterly results had shown positive growth and profitability trends in e-commerce. The spokesperson added, “We are continuing to work closely with Kroger to drive this further and have made positive progress with the implementation of our new technology and the work of our Partner Success teams.”
Kroger has said it plans to provide an update on its review during the third quarter. In July, Ocado CEO Tim Steiner had expressed confidence in Kroger’s e-commerce growth under Sargent, stating that the U.S. remains “an enormous ongoing opportunity” for Ocado. However, he declined to comment on whether the exclusivity clause in their deal with Kroger, which is dependent on growth, would expire later this year.
