Kroger advances plan to partner with Ocado on e-grocery DCs

Supermarket chain the Kroger Co. has firmed up its plans to build 20 highly automated warehouses for handling e-commerce grocery orders in a tie-up with British retailer and technology provider Ocado Group plc, Ocado said Tuesday.

Cincinnati-based Kroger will announce the location of the first three customer fulfillment centers (CFCs) within the next several weeks, according to the terms of a new "master services agreement" between the partners.

Under the terms of that agreement, Kroger is expected to order the first three CFCs by the end of 2018 and order a total of 20 CFCs over the first three years. Ocado will spend an estimated $117 million to build the first three facilities, preparing each one to "go live" within two years of its ordering date. In turn, Kroger has increased its ownership stake in Ocado to six percent, the partners said in the terms of their deal first announced in May.

Ocado—which operates an online grocery and general merchandise retail business of its own in the U.K.—will develop and operate those sites by installing and maintaining modules of mechanical handling equipment (MHE). The company recently shared a video tour of one of its own automated DCs for handling online grocery retail orders, located in Andover, Hampshire, U.K.

The deal with Kroger, which serves nine million customers daily through its 2,800 retail food stores and digital shopping portal, marks Ocado's largest corporate partnership to date. Through its Ocado Solutions branch, the firm has also contracted its services to operate the online business of Wm Morrison Supermarkets plc in the UK, Groupe Casino in France, Sobeys in Canada, and ICA Group in Sweden.

Ocado Solutions' Ocado Smart Platform (OSP) includes online ordering, automated fulfillment, and home delivery capabilities, the firm says. The OSP suite of products is an enabling platform provided as a service to retailers, comprising access to Ocado's physical infrastructure solutions to run efficient warehouse operations for the single pick of products, and access to the proprietary software applications required to operate an online grocery business, including products from user interfaces through warehouse operating and control systems, logistics, route planning, and optimization, Ocado says.

"The Kroger and Ocado teams have been working hard for some time to prepare for the opening of the first CFCs in the United States," Luke Jensen, CEO of Ocado Solutions, said in a release. "We are very excited at the prospect of helping Kroger bring new services and value to its customers and transform the food retail market in the U.S."

The e-commerce grocery sector has attracted a rising tide of investment in recent months, including retail giant Amazon.com Inc.'s $13.7 billion purchase of the Whole Foods Market grocery chain, the logistics service provider MonarchFx's launch of a food and beverage division, and system integrator Knapp's partnership with Boston-area e-grocery startupTakeoff Technologies.