Ocado shares rise 44% on news of Kroger tech deal

Ocado shares rise 44% on news of Kroger tech deal
Ocado delivery vanImage copyright Newscast

Shares in online grocer Ocado have surged by 44% after it struck a deal with US retail giant Kroger.

Ocado’s technology will be used in the US exclusively by Kroger, which is one of the world’s biggest grocery chains with annual sales of $122bn (£90bn).

Under the terms of the deal, Kroger will also take a 5% stake in Ocado.

The agreement is the latest in a series of deals that Ocado has struck with retailers to share its technology that automates online grocery orders,

The Kroger deal is the fourth agreement Ocado has reached in six months, and marks its first foray into the US.

Shares in Ocado started the day worth 552p, rose at one point to 995p, and ended the day worth 797p.

James Lockyer, analyst at Peel Hunt, says that one of the reasons that Ocado’s deal with Kroger is so “transformational” is because of the sheer number of robotic warehouses that British company could build for its new US customer.

Under its agreements with Group Casino of France and Canada’s Sobeys it will build one automated warehouse for each, under the deal with Kroger Ocado will build between three and 20.

Ocado and Kroger are already looking to identify the first three sites for automated warehouse facilities in the US, and are aiming for up to 20 sites over the first three years of the agreement.

As the deal with Kroger is exclusive, Ocado said it would now end talks with other US-based retailers.

In the past few months, Ocado has struck a deal to share its technology with with ICA Group in Sweden. It also operates the online business of the UK’s fourth largest supermarket, Morrisons.

‘Ocado is making great strides in the global grocery market,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“The company is known in the UK as an online supermarket, but that’s just the tip of the iceberg, as Ocado is primarily a technology and logistics firm with the potential to license out its services to grocers around the world.

“Indeed there seems to be a bit of a queue forming, made up of those who want to play catch-up in the digital retailing age, and consequently Ocado now has a foothold in the hugely important US market, as well as the UK, France and Canada.”

Long road to profit

Ocado was set up in 2000 by former Goldman Sachs bankers Tim Steiner, Jonathan Faiman and Jason Gissing – though Mr Steiner and Mr Faiman had known each other since nursery school in North London.

The company’s launch was helped by Waitrose, the upmarket supermarket group, which injected £46m to help build Ocado’s distribution base in Hertfordshire.

In return, Waitrose supplied Ocado and took a 40% in the fledgling business.

For years Ocado was criticised for not making a profit and when it first sold shares on the stock exchange in 2010 it had to cut the offer price.

Also, for a long time, there were questions about how Ocado could expand its business given its contractual ties to Waitrose.

It eventually signed a £216m deal with Morrisons in 2013 to operate a new online grocery service for the supermarket group.

As of 2018, Mr Steiner is the only member of the founding trio to remain at Ocado, where he is chief executive.

Mr Gissing retired in 2014, while Mr Faiman departed in 2009 and has since entered the oil industry by investing in and becoming chairman of exploration group Neos.

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