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Kroger Ties Up With Ocado as Grocery Ecommerce Enters the Next Phase

The battle for grocery e-commerce supremacy just got a whole lot more interesting with the annoucement of a strategic alliance between US supermarket giant Korger and UK grocery e-commerce pure play Ocado.

I consider Ocado to be best in breed in terms of their automated fulfillment (Customer Fulfillment Centers) and creating customer friendly interfaces to facilitate efficient ordering. This has led to what is arguably one of the few e-commerce grocery businesses that is actually profitable, with group turnover of £1.5 billion and significant EBITDA profit of £86 million in 2017.

Ocado’s technology automates the processing and packing of online grocery orders, using hundreds of robots in technological advanced order fulfillment centers.  Ocado has recently been working on licensing their technology solutions and had created partnerships with Morrisons, Grupe Casino and Sobeys in Canada. The Kroger deal takes this to a whole new level. As part of the deal, Kroger will take a stake in the British company, equivalent to 5 percent of the existing share capital valued at 183 million pounds.

Kroger is no stranger to utilizing UK technology to drive their business. Kroger had a long term partnership with Tesco and Dunnhumby around loyalty programs, which has since been spun off as 84.51°.

The move with Ocado significantly ups the ante for Kroger and further positions them in their long term battle against Walmart and Amazon:

  • ClickList has rolled out to over 1000 stores, which focuses on order on-line, in-store fulfillment and in-store pick up
  • Kroger has partnered with Instacart in multiple divisions, which also relies on in-store picking and contracted delivery in as little as one hour
  • With Ocado, the two companies are working to identify the first three sites in 2018 for the development of new, automated warehouse facilities, and will identify up to a total of 20 over the first three years of the agreement. These warehouses truly can be game changers, with automated technology capable of picking 175 units per hour, according to Ocado’s annual report, which is a massive step change versus in-store efficiencies.

What is the right answer?  There is likely not just one perfect solution for e-commerce fulfillment. While in-store pick is an easy way to start, it is highly inefficient from a labor standpoint and difficult to scale—in busy e-commerce stores, pickers can get in the way of shoppers. Automated warehouses are also not the end-all solution. Automation is capital intensive, requires scale to get to efficiency and doesn’t work in all geographies (population concentration, like what is seen in higher penetrated grocery e-commerce markets in the U.K. and South Korea, is a huge factor). Kroger is likely to continue to operate multiple models while it builds out these automated centers.

This is another game changer in the grocery e-commerce wars.

By Neil Stern

Neil Stern for Forbes


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