Ocado soars to record as it cracks US market with Kroger deal

Bloomberg

Ocado Group Plc soared to a record after Kroger Co. agreed to buy a stake in the UK online grocer, which is breaking into the US market with a landmark deal to license its home-delivery technology to the supermarket chain.
Ocado’s first US licensing pact marks Kroger’s response to Amazon.com Inc.’s purchase of Whole Foods Market Inc., which extended the e-commerce giant’s reach into bricks-and-mortar retailing. Ocado rose as much as 51 percent in early London trading.
“Kroger is one of the few national retailers in the US,” Ocado Chief Financial Officer Duncan Tatton-Brown said on a call with reporters. “We are confident we have picked the right partner.”
The deal, Ocado’s biggest to date, marks the latest tie-up among grocers as online competition heats
up and pricing pressure squeezes profit margins. In the UK, Tesco Plc has acquired wholesaler Booker, while J Sainsbury Plc has agreed to buy rival Asda from Walmart Inc., which is taking over Indian e-commerce provider Flipkart. Several French retailers have formed purchasing alliances.
Kroger will become the exclusive user of Ocado’s technology for distributing groceries and food, according to a statement. It also agreed to buy new shares in the UK company, taking a stake of about 5 percent. The companies are working on identifying sites for three automated distribution centers in the US this year and may open as many as 20 within three years.
The number of distribution centers Kroger is committing to is “materially ahead of anything we had expected,” wrote Bruno Monteyne, an analyst at Sanford C. Bernstein.
With sales last year of $122 billion, Kroger is the second-biggest grocer in the US behind Walmart, according to Bloomberg Intelligence.
After years of trying without success, Ocado is transforming itself from an online retailer into a technology provider.
The company struck its first major licensing deal with Casino Guichard-Perrachon SA of France in November, which was followed by agreements with Sobeys Inc. of Canada and Sweden’s ICA Gruppen AB.
“We have the capacity to sign more deals,” Tatton-Brown said, adding that this agreement “makes a point: If you want to sign with us, you have to get on with it.”
Ocado’s services are in demand because storing and delivering groceries is more complex than selling books or video games, given the risk of food spoiling.
Kroger will pay undisclosed monthly exclusivity and consultancy fees to Ocado.