Kroger's Ocado Facility Delivers First Load

The first robotically-prepared online grocery order in The Kroger Co.’s 137-year history whizzed out the door of a newly constructed high-tech warehouse this week, marking the “soft opening” for the retailer’s multimillion e-commerce partnership with the British technology company Ocado.

Details of the order—what was in it and where it went—are being kept under wraps for now as the Cincinnati grocer prepares a formal presentation ahead of the facility’s grand opening early next month—but CEO Rodney McMullen mentioned the event while reviewing the chain’s fourth-quarter earnings results in a conference call this week.

There is much anticipation around—and even more riding on—Kroger’s debut of Ocado’s technology as the retailer moves to better execute how online orders are assembled, primarily but not entirely shifting from store-picked to automation. Its backers say Ocado, which is providing robotic warehouses and software to Kroger in an exclusive U.S. partnership, will provide Kroger with the lowest cost-to-serve and greatest capacity in the industry, critical components to meet its online ambitions profitably.

The facility where the order was picked in Monroeville, Ohio, measures a massive 335,000 square feet and represents an investment of $55 million from Kroger. Around the country, Kroger and Ocado Solutions are planning and/or building another 19 such facilities as part of a partnership announced for the first time nearly three years ago.

McMullen’s remarks this week came as he discussed the company making improvements to digital profitability during the quarter, although as with most online food merchants, e-commerce remains a money-loser for Kroger, despite $10 billion in sales through the channel. While indicating the company would have more to share on its viewpoint on online when it presents for investors later this month, its goal to is to reach incremental sales “pass-through” rates on digital orders that are at parity with the same shopping trip in stores.

Kroger had previously pegged those figures in the “mid-teens” for store visits and about 5% online. CFO Gary Millerchip said volume improvements and revenue for associated advertising improved that latter figure by about 20% during the fourth quarter.

Profitability parity is important for Kroger as it works to support what it calls its “seamless” ambition—or the notion of providing shopping in the varied modalities their customers want. The big Ocado facilities—along with smaller ones, dark stores and software to guide order picking—are only part of the picture.

Digital advertising is helping, officials said, in part because the online experience lends itself to personalized offers and results partners can be certain of. “When customers engage with us digitally, we can truly personalize the experience, and that’s where our CPG partners today get very excited, about the unique value we can create for them by personalizing the offer and the promotion and driving a higher return on that spend,” Millerchip said.