Kroger ditches plans for Ocado warehouse in US as it scales back sites further

Retail technology firm Ocado has been dealt another blow after its US partner Kroger scrapped plans for a new automated warehouse following its decision last month to shut three existing sites.

Ocado said Kroger would no longer go ahead with a site in Charlotte, North Carolina, which was one of two due to launch in 2026 that Ocado is contracted to deliver.

But London-listed Ocado saw shares rise 6% after announcing it had secured a 350 million US dollar (£262 million) compensation payout from Kroger for the move to scale back its warehouses.

Ocado – which offers automated technology for retailer distribution centres, as well as running its own online grocery business – said Kroger will make the one-off cash payment in January.

It follows the announcement last month that Kroger will shut three Ocado-run warehouses in January, which sent Ocado’s shares plunging on the day, with the firm warning it will hit the next financial year’s fee revenues by about 50 million US dollars (£38 million).

The group will continue to operate five sites for Kroger in Monroe, Dallas, Atlanta, Denver and Detroit.

It will also continue to support Kroger with logistics operations and driving profitable sales volume growth in the remaining sites.

Tim Steiner, chief executive of Ocado Group, said: “We continue to invest significant resources to support our partners at Kroger, and to help them build on our longstanding partnership.

“Ocado’s technology has evolved significantly to include both the new technologies that Kroger is currently deploying in its customer fulfilment centre network, as well as new fulfilment products that bring Ocado’s technology to a wider range of applications, including store based automation to support ‘pick up’ and immediacy.

“We remain excited about the opportunity for Ocado’s evolving products in the US market.”

Ocado launched a significant partnership with Kroger, one of the largest supermarket chains in the US, in 2018.

Initially, the firms agreed to build the equivalent of 20 customer fulfilment centres, where automated robots sort orders, but have so far opened eight sites.

Bosses at Kroger told investors in the US earlier this year they were reviewing their use of the automation technology as part of efforts to reduce costs and improve profitability.

Kroger said it plans to focus more on fulfilling orders directly from stores to improve speed and efficiency.

Alongside its global retail technology business, Ocado also runs an online grocery firm as a joint venture with Marks & Spencer.

The group posted a pre-tax profit of £611.8 million for the six months to June 1, rebounding from a £153.3 million loss a year earlier, as it benefited from a revaluation of its stake in the Ocado Retail business.