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Kroger Co. partners with Britain's Ocado to build automated home delivery centers

Up to 20 fulfillment centers planned in U.S.
Posted at 7:40 AM, May 17, 2018
and last updated 2018-05-17 11:34:24-04

CINCINNATI - Amazon Inc. is testing delivery drones. So, naturally, the Kroger Co. will need delivery robots.

The Cincinnati-based grocery chain is partnering with the British online grocery provider Ocado to build up to 20 automated warehouse facilities in the U.S. over the next three years. The partnership will enhance Kroger’s “digital and robotics capabilities” to let customers order online at an automated fulfillment center that prepares groceries for home delivery anywhere in the U.S.

“We see Ocado as an innovative, exciting and transformative partnership,” CEO Rodney McMullen said in a press release. “Our partnership with Ocado will speed up our efforts to redefine the food and grocery experience.”

The companies are working to identify three sites for automated fulfillment centers by the end of 2018. The centers will use robotic technologies to "pick" grocery orders for later delivery, but each facility will employ up to 600 people. The centers are expected to cover broad geographic territories, delivering orders to cities where Kroger already competes along with many towns where it doesn't have stores.

The new business venture also includes a “subscription rights agreement” that will increase Kroger’s ownership of Ocado to 6 percent. As part of the deal, Kroger gains exclusive rights to deploy the Ocado Smart Platform in the U.S. grocery industry.

“As we work through the terms of the services agreement with Kroger in the coming months, we will be preparing the business for a transformative relationship which will reshape the food retailing industry in the U.S. in the years to come,” said Tim Steiner, CEO of the Ocado Group.

Kroger has been shopping for months for new ideas to beef up its home-delivery capabilities. Published reports in January indicated turned down a $400 million purchase offer from Kroger, which was also said be exploring new business relationships with and China’s Alibaba Group Holding Ltd.

In the end, Kroger struck a deal reminiscent of another transformative transaction with a British company: Dunnhumby. Kroger formed a joint venture with the data mining company in 2003 to better understand the purchasing behavior of its customers. That led to new loyalty marketing programs that fueled a 13-year streak of rising same-store sales.

In 2015, Kroger acquired a “perpetual license” to use Dunnhumby’s data tools and much of its U.S. operations, which now operates as a wholly owned Kroger subsidiary called 84.51.