Dive Brief:
- Ocado has announced plans to establish two new customer fulfillment centers (CFCs) in partnership with Kroger, set to open in fiscal 2026. One of these centers will be located in Charlotte, North Carolina, while the other will be situated in Phoenix, Arizona. This information was shared by Ocado’s Non-Executive Director, Stephen Daintith, during an earnings call concerning the company’s fourth-quarter fiscal 2024 results.
- In January, Kroger placed an order for Ocado’s Auto Freezer solution, which automates the management of frozen inventory in these centers. This order has resulted in a slight delay in the opening schedule for the new facilities, according to Daintith.
- Despite previous delays, Kroger and Ocado are committed to advancing their partnership and are making progress after a period of stifled development.
Dive Insight:
Ocado Chairman Adam Warby addressed investors, acknowledging that while the company is experiencing growth across its various customer fulfillment centers globally, this growth has not met their expectations or those of their partners. The partnership between Ocado and Kroger, established in 2018, initially aimed to build capacity for 20 CFCs across the United States. However, to date, only eight of these centers have been opened, as noted on Ocado’s official website. Investors expressed concerns regarding the progress of the Kroger partnership during the earnings call.
In response to these concerns, Ocado CEO Tim Steiner assured investors that there is no negative relationship with Kroger. He mentioned that distractions that previously hindered progress have been resolved, and the two companies are now collaborating closely on the new sites. Steiner emphasized the significant opportunities that exist in the U.S. market and reiterated their commitment to addressing these opportunities alongside Kroger.
Kroger Chairman and CEO Rodney McMullen indicated in mid-2023 that the grocery chain is currently holding off on the construction of new e-commerce sites in collaboration with Ocado until they can ensure a clear path forward for existing sites. Last year, Kroger announced plans to integrate various Ocado technologies, including On-Grid Robotic Pick and Automated Frameload, into its CFCs. This announcement followed the completion of three spoke facilities, which are located in Texas and Florida.
After a series of announcements made between 2020 and 2022, Kroger has maintained a relatively low profile regarding its collaboration with Ocado. During its third-quarter earnings call in December, Kroger reported that its CFCs have contributed to an 18% growth in delivery sales, highlighting the significant increase in customer engagement and basket sizes facilitated by these automated centers.
Steiner noted that most of Ocado’s CFCs worldwide are performing well, with some nearing profitability. However, he acknowledged that certain centers require improvements or a different strategic approach due to challenges in scaling volumes. The successful CFCs benefit from favorable locations, high customer densities, and target demographics.
Addressing Ocado’s value proposition, Steiner explained that the company’s solutions offer retailers the potential to significantly reduce labor costs. For instance, an Ocado CFC can process a 45 to 50-item order with approximately 10 minutes of human labor, which is roughly one hour less than the time required by traditional store workers.
For the full fiscal year 2024, Ocado reported a 14% increase in revenue, reaching £3.2 billion (approximately $4 billion). Despite incurring a loss of £374 million, the company achieved an adjusted EBITDA of £153 million, nearly tripling its performance from the previous year. Additionally, Ocado made a notable improvement of £249 million to its underlying cash flow and successfully refinanced £700 million of debt.
