Kroger Consummates Ocado Marriage

The Kroger Co. officials highlighted the importance of its strategic partnerships at its investor conference Tuesday as the retailer works toward its goal of $400 million in incremental FIFO operating profit by 2020, as well as "redefining the grocery experience" via its intensive restock program.

Kroger Chairman and CEO Rodney McMullen said that "strengthening the seamless ecosystem and growing complementary business partnerships that generate alternative revenue streams" was at the heart of the retailer's initiative, along with additional important focuses outlined in the conference, such as innovation within its private brand portfolio, waste reduction and employee retention and development. 

McMullen said Kroger is allotting significant funds for technology investments in a journey to create a business that can serve consumers "whatever they want, whenever they want, wherever they want."

Additionally, McMullen stressed that "using only the traditional grocery retail business" to build Kroger's financial model would result in some "big misses."

"[It] is tantamount to looking into the rearview mirror,  and of course you always have to use the rearview mirror when driving, but relying solely on it is not the best approach to driving obviously," he said. "If you’re driving on the autobahn, it would be a terrible idea to rely solely on it. And I can tell you today, when you look at the retail environment, it’s like driving on the autobahn. It’s incredibly exciting, but there’s a lot going on and it’s going on fast."

 As such, Kroger has entered into multiple large partnerships since the launch of its Restock program last year, the likes of which include Home Chef, Alibaba and most recently Walgreens. But this week's buzz was focused on the finalization of a deal with British e-commerce company Ocado, originally inked in May, which will work with Kroger to build about 20 automated warehouse facilities in the U.S. over the first three years of the agreement, Reuters reported.

Alex Tosolini, SVP of new business development, said the retailer and Ocado are now "married" and the location of the first three facilities will be revealed in the very near future. Officials said the locations of the first seven locations are known internally, but the retailer is working hard to ensure each facility is strategically placed. 

"They understand grocery, they are obviously a very knowledgeable supply chain expert," Tosolini said. "At heart, they’re a technology company."

Company officials also appeared optimistic about Kroger's "exploratory pilot" with Walgreens, in which 13 Walgreens stores in northern Kentucky are allowing customers to grab their Grocery Pickup (previously ClickList) orders at the store and are also offering select Kroger store brand items in-store. This effort more than "doubled the capacity and coverage in that area overnight," said Gary Millerchip, CEO of Kroger personal finance and corporate strategy integration lead.

Other innovations on the horizon include more meal solution innovations through Home Chef, which officials said could also give the currently slow-to-be-acquired voice ordering function a boost and was recently brought in-store; shelf edge technology; and on-demand scheduling that would allow associates to sign up for flexible hours across multiple local stores.