Kroger, Ocado set terms for e-commerce partnership

The Kroger Co. and Ocado Group have signed a service and operational pact in connection with their partnership to build U.S. automated warehouse facilities for Kroger’s online grocery business.

U.K.-based Ocado said Tuesday that, under the terms of the deal, Kroger plans to order three customer fulfillment centers (CFCs) by the end of 2018 and 20 CFCs during the first three years of the agreement.

Kroger is expected to announce the locations of the first three CFCs in the next several weeks.

“This is a significant step toward both solidifying our partnership with Ocado and redefining the Kroger customer experience,” Alex Tosolini, senior vice president of business development at Cincinnati-based Kroger, said in a statement. “The alliance will bring to the U.S. Ocado's unparalleled innovation and technologies. This is exciting news and will help accelerate our vision to serve America through food inspiration and uplift.”

Ocado has agreed to deploy and maintain modules of mechanical handling equipment to provide a certain level of throughput. The company said the goal is for Kroger's CFCs to be up and running within about two years of each order being placed.

The terms and fee structure of the service and operational agreement combine upfront fees and ongoing capacity fees, according to Ocado, which pegged the cost for the first three CFCs at about £90 million.

Related:Kroger allies with UK online grocer Ocado

“We are delighted to have signed this services agreement with Kroger, which sets out the key parameters for our working relationship going forward. 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,” said Luke Jensen, CEO of Ocado Solutions. “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.”

Through the partnership, leading British online grocer Ocado is slated to augment Kroger's digital and robotics capabilities and extend its omnichannel reach to provide “every family in America with the convenience of shopping for anything, anytime and anywhere.”

When the alliance was first announced in May, Kroger Chief Financial Officer Michael Schlotman noted that the deal gives Kroger a broad e-commerce solution exclusive to the company in the U.S. The Ocado Smart Platform offers capabilities in online ordering, automated fulfillment and home delivery. 

Also with the partnership, Kroger raised its investment in Ocado by 5% through a subscription rights agreement, bringing its stake in the U.K. company to more than 6%.