Ocado cadges Kroger in exclusive U.S. technology supply deal

Kroger Chairman and CEO Rodney Mc Mullen discussed Walmart as a competitor on Bloomberg Television on April 30

As part of a newly inked alliance, Kroger (KR) is harvesting the ordering, fulfillment and home delivery capabilities of United Kingdom -based online grocer Ocado, ramping up its arsenal against grocery rivals Walmart (WMT) and Amazon (AMZN).

Online retail specialist Ocado has signed its fourth global deal, with the announcement that it will be supplying its Ocado Smart Platform technology to Kroger in the US. As part of the deal, Kroger will be taking a stake in the British company which would be equivalent to 5 percent of the existing share capital valued at 183 million pounds.

Kroger will begin with three sites in 2018, and has a goal of up to 20 fulfillment centers for the first three years of this arrangement said Ocado.

Neil Wilson, senior markets analyst at Markets.com, said: "Ocado has some protection in the deal as if they fail to hit the capacity target, Kroger will pay compensation". The Kroger partnership represents the fourth agreement Ocado has made during the past six months, although this represents its first foray into the USA market.

The UK-based online grocer, which has achieved remarkable growth since its foundation in 2002, has teamed up with one of the world's biggest retailers to provide it with its unique technology solutions.

The deal is the latest in a series of tie-ups announced by Ocado recently.

Ocado will discontinue discussions with other US-based retailers, in return for Kroger paying exclusivity and consultancy fees on a monthly basis ahead of a more permanent financial agreement in the future.

The two companies are working to identify the first three sites in 2018, the company said.

Ocado uses purpose-built robots, which are capable of picking a 50-item order in minutes, to man its automated warehouses, Paul Clark, Ocado Chief Technology Officer, wrote in the Harvard Business Review.

Kroger Co shares were trading at $25.58 per share on Thursday morning, up $0.64 (+2.57%).

"We see Ocado as an innovative, exciting and transformative partnership in pursuit of our Restock Kroger vision, to serve America through food inspiration and uplift", he said.

The retailer's efforts to create a "seamless digital experience" for customers would speed up as a result, he added.

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