Ocado Group has signed a partnership agreement with The Kroger Co. under which Ocado’s technology will be used in the US exclusively by Kroger for grocery and other food distribution related activities. The objective of this partnership is to allow Kroger to redefine the grocery customer experience in the US through the adoption of the centralised, automated model of online retailing provided by the Ocado Smart Platform.
Kroger is one of the world’s biggest grocery retailers, and a market leader in the US, with sales in fiscal 2017 of $122bn.
Ocado and Kroger have agreed to the following:
● Ocado believes Kroger to be the grocer best-positioned to win in US grocery and will discontinue discussions with other US-based retailers
● Kroger agrees to pay monthly exclusivity and consultancy fees which will offset in part the total fees that are expected to be agreed between the two parties
● An overall services agreement will be negotiated to provide for the drawdown of multiple CFCs across the US, on the basis of standard Ocado OSP terms
● Kroger will subscribe for up to 33,146,200 new ordinary shares in the capital of Ocado, equivalent to 5% of the existing issued share capital of Ocado, at a value of £183m.
Kroger and Ocado are already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the US, and will identify up to a total of 20 over the first three years of the agreement. In the event of a failure to commit to the target capacity, Kroger will pay compensation to Ocado.
In the longer term, Kroger will retain exclusivity in the US conditional on it meeting market share targets or ordering an agreed number of CFCs per annum.
Tim Steiner, CEO of Ocado, 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.”