Sign up Australia
Proactive Investors - Run By Investors For Investors

Ocado and Kroger looking to transform US grocer sector

By 2021, they hope to have 20 giant, automated warehouses up and running that can pick and pack shopping in just five minutes
Kroger trolley handle
Forget the trolley, the week's shopping will be delivered to the front door

This is a big deal, said City broker Numis of Ocado PLC’s (LON:OCDO) £183mln tie-up with US retail giant Kroger Co (NYSE:KR) - though it’s doubtful the investing public really needed to be told with the share price up almost 70%.

Earlier, jaws dropped as the UK online grocer signed a technology and fulfilment deal with America’s largest chain of supermarkets; a company that generated US$122bn in revenues last year.

The scale of the pair’s ambitions was summarised by Ocado boss Tim Steiner, who said it could transform the food retail industry in the US.

He added: “[It] represents a huge opportunity to redefine the grocery experience of Kroger's customers and create value for the stakeholders of both Kroger and Ocado."

The plan is to roll out three customer fulfilment centres (giant automated warehouses) this year and a total of 20 over three years.

READ & WATCH: How the automated warehouse of the future picks and packs your groceries in just five minutes 

Kroger demonstrated its commitment to the Anglo-American alliance by subscribing for 33.1mln Ocado shares worth £183mln, which would give it a 5% share of the UK business.

It has even said it will pay compensation if it fails to hit the capacity targets the two retailers have agreed.

“This is clearly a transformative deal for Ocado, and one that is on a completely different scale to those announced in the past,” said Numis analyst Andrew Wade.

“We have little doubt that an attractive return on invested capital will be achieved on the huge amount of capital set to be invested across Ocado’s global Ocado Smart Platform partnerships and, with a significant long-term earnings runway now in place, retain our positive stance.”

Fourth international partnership 

Kroger is the fourth international partnership for Ocado and its fifth in total as it has looked to expand, not as an online grocer but more as a technology solution provider.

Earlier this month, the company inked an agreement with Sweden's ICA, building on overseas deals with France's Group Casino and Sobeys of Canada. 

Remember too, Ocado counts Morrison Supermarkets PLC (LON:MRW) as one of its customers, having run the technology and delivery network for the Bradford-headquartered supermarket chain's online operation since it launched in 2014. 

The shares, which have more than tripled in value over the last year, were changing hands for 925p each, up 68% on the day. 

This values the business at just over £6bn, which, if the stock remains at these heady levels, would catapult Ocado into the FTSE 100.

£100mln boost for the boss

For CEO Steiner, Thursday has been very profitable with his stake in the business he founded worth £250mln, making him £100mln richer.

There are losers in the rapid ascent of the share price – the short sellers betting that Ocado would stumble and fall with the onslaught of the big beasts of online retail, led by Amazon.

Instead, it has taken the fight to the opposition with more than a little success.

Losses incurred today alone by the ‘shorties’ are in excess of £150mln.

Get shortie

One suspects the momentum will continue to work against the men and women in dark glasses as the hedge funds and proprietary trading desks look to cover their positions.

And there’s a premium that accrues when a company is elevated to the FTSE 100 and the tracker funds are required to stock up shares on newly promoted firms.

All in, Numis got it spot on: this is a big deal … for everyone involved.

View full OCDO profile View Profile

Ocado Timeline

Newswire
December 10 2015
Article
September 15 2015

Related Articles

Warsaw
April 10 2018
The goal is to have 70 stores by the end of 2018 and 100 by 2020

No investment advice

The information on this Site is of a general nature only. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions. You acknowledge and understand that neither the Company, its related bodies corporate, the information providers or their affiliates will advise you personally about the nature, potential value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter. You should read our FSG and any other relevant disclosure documents and if necessary seek persona advice prior to making any investment decision.

You understand and agree that no Content (as defined below) published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person.

You understand that in certain circumstances the Company, its related bodies corporate, the information providers or their affiliates may have received, or be entitled to receive, financial or other consideration in connection with promoting, and providing information about, certain entities on the Site and in communications otherwise provided to you.

You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate. From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

Before you act on any general advice we provide, please consider whether it is appropriate for your personal circumstances.

© Proactive Investors 2018

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use