Cincinnati, Ohio-based Kroger is the largest grocery chain in the U.S. and has stores in 34 mainly midwest and southern states. The grocery company had sales of $122 billion in its most recent fiscal year.
Ocado was founded in 2000 by three former Goldman Sach’s bankers and the company claims its Smart Platform (OSP) technology is the most advanced in the world. Ocado’s licensed OSP is used in markets including ICA in Sweden, Sobeys in Canada and Casino in France.
“This puts Kroger on an entirely different level,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “This is definitely a warning shot that Kroger is serious about online retail and grocery delivery.”
Kroger Chief Financial Officer Michael Schlotman told CNBC’s “Squawk Box” Thursday there were a number of positive benefits in the deal. “It is not just online selling to customers, they have capabilities that will also help us provide piece pick items to our stores so that will help our logistics,” he said.
Intense competition in the grocery industry
Kroger and other grocery chains have been fighting to keep customers as Amazon and Walmart appear to be taking a bigger and bigger share of the market. Kroger invested in what it calls its click-and-collect program, which allows customers to order groceries online and pick them up in stores.
They have also partnered with third-party delivery services, including Instacart, as customers begin warming up to the idea of shopping for groceries from the comfort of their homes. Surprisingly, less than 2 percent of groceries are bought online in the U.S. but Amazon wants to change that percentage as it ramps up its push with Whole Foods.
Walmart has jumped into the e-commerce battle with both feet, making a number of costly investments in e-commerce to protect its grocery business, which accounts for more than half of its revenues.
This competitive atmosphere has put the squeeze on Kroger as it has fought to maintain its place in the economy. With 2,800 stores, if has started focusing on e-commerce. This is why Kroger, which already had a 1.0 percent stake in Ocado, agreed to buy about 5.0 percent of the company.
The plan is to open as many as 20 robotic warehouses within the next three years. While the warehouses will be fully automated, each warehouse will employ around 600 people each.
Further Reading: Ocado creating a humanoid robot army with artificial intelligence
Schlotman said it will be a “relatively slow” process with each site taking around two years as the firms identify locations, secure permits and then build the warehouses. Only after this will Ocado install the robotic technology.
Luke Jensen, CEO of Ocado Solutions, spoke with CNBC’s Joumanna Bercetche on Thursday. “The grocery online market in the U.S. has been relatively underdeveloped compared with some European markets. It represents less than 2 percent of the total grocery market, versus 7.5 percent in the U.K., but is now growing very fast and is an enormous growth market,” he said.
