Kroger Co (NYSE:KR) has signed a deal with the U.K.’s Ocado Group Plc (LN:OCDO) to bring the British grocer’s home-delivery platform into the United States, the companies announced today. KR stock closed up less than 1% yesterday in heavier-than-usual trading.
The FTSE 250 index constituent Ocado touts itself as the world’s largest dedicated online grocery retailer, and has developed a “unique end-to-end operating solution for online grocery retail based on proprietary technology and IP” suitable for both its own business and for the grocer’s commercial partners.
The move comes as Kroger has committed to spending some of the savings generated by the Trump tax reform on digital initiatives, which InvestorPlace writer Tom Taulli last month called a smart reinvestment that “should have a positive long-term impact.” “Consider that Kroger is already making progress with its efforts. The company has rolled out apps, which integrate with coupons, recipes and rewards. Then there are platforms like ClickList (a home-delivery service) and Harris Teeter ExpressLane (a pick-up service), which are in over 1,000 locations,” he wrote on April 6.
The Cincinnati, Ohio-based supermarket operator has been hit hard by Amazon.com Inc.’s (NASDAQ:AMZN) expansion into physical grocery locations with its $13-billion purchase last year of Whole Foods. At the same time, KR stock is feeling the pressure from traditional brick-and-mortar operators like Walmart Inc (NYSE:WMT) and Target Corporation (NYSE:TGT), which have been bolstering their grocery businesses. KR stock is down almost 13% over the past 12 months.
Ocado’s technology automates the processing and packing of online grocery orders, using an army of robots in advanced order fulfillment centers, according to a Reuters report. Kroger will start with three sites this year, with a goal of as many as 20 fulfillment centers in the first three years of the arrangement, Ocado said.
Kroger is buying the equivalent of 5% of the U.K. company, estimated to be valued at $256 million.
Along with Kroger’s other restructuring efforts, the grocer’s technology investments are viewed as a long-term positive. Taulli wrote last month, for investors with “a long-term approach, KR stock does look like an interesting value at current levels.”
