Kroger Scales Back Partnership with Ocado, Cancels Key Projects

Kroger, the prominent American grocery chain, is reshaping its e-commerce strategy by pulling back from its partnership with Ocado, a leading provider of automated grocery fulfillment technology. This shift includes the cancellation of plans for a new automated grocery fulfillment center in Charlotte, North Carolina, alongside the closure of multiple related sites across the United States.

Financial Implications

In a significant financial maneuver, Kroger is set to pay Ocado a one-time fee of $350 million as part of this strategic realignment. This payment reflects the costs associated with scaling back the use of Ocado’s robotic warehouse network in the U.S., which has faced challenges in execution.

Impact on Workforce

Among the facilities affected by this decision is a spoke center located in Nashville, Tennessee, which is slated for permanent closure. This move will result in the loss of 132 jobs, raising concerns about employment impacts amid the broader industry shift.

Shift in Strategy

Kroger’s initial partnership with Ocado began in 2018 with ambitious plans to establish an extensive network of automated customer fulfillment centers. These sites were intended to bolster Kroger’s online grocery capabilities using Ocado’s advanced robotics and software. However, many of the proposed projects never progressed beyond the planning stage.

Future Directions

In response to the changing landscape, Kroger is now pivoting its online grocery strategy. The company plans to utilize its existing store locations for order fulfillment, which is a marked departure from the centralized warehouse approach. Additionally, Kroger is increasing its reliance on third-party delivery services, including platforms like Instacart, DoorDash, and Uber Eats, to manage last-mile logistics effectively.

Conclusion

The pullback from the Ocado partnership signifies a notable shift in Kroger’s approach to e-commerce and marks a setback for Ocado’s attempts to penetrate the U.S. market with its automated grocery model. While Ocado maintains that Kroger remains a partner, the relationship is now considerably scaled down compared to initial expectations. The $350 million compensation will help mitigate the financial impact associated with the cancellation of these ambitious projects.