Published: Fri, May 18, 2018
Money | By Wilma Wheeler

Kroger Tackles Amazon Rivalry With Exclusive New Partnership

Kroger Tackles Amazon Rivalry With Exclusive New Partnership

Shareholders watched their investment soar more than 80pc yesterday after a game-changing deal to licence Ocado's online grocer technology to USA retailer Kroger.

As part of the partnership agreement, Kroger will increase its existing investment in Ocado by five percent, bringing its total investment to more than six percent.

Kroger shares were last up 1.6 percent on the deal, with investors reassured by the USA company saying the move would not dampen expected earnings for 2018 and 2019. The opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger's customers and create value for the stakeholders of both Kroger and Ocado.

Kroger, who has the second biggest grocer in the USA after Walmart, also agreed to buy a 5% stake in the United Kingdom online supermarket.

Ocado's chief executive, Tim Steiner, described the deal as "transformative" and said it would "reshape the food retailing industry in the USA in the years to come".

If the Ocado partnership gives Kroger the confidence to bring delivery in-house, "that will be disastrous for Instacart", said Neil Saunders, managing director of GlobalData Retail.

'The opportunity to partner with Kroger to transform the way in which U.S. customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger's customers and create value for the stakeholders of both Kroger and Ocado, ' he said. Over the next three years, they will aim to find locations for 20 fulfilment warehouses. "Ocado's current logistics and technical expertise in supporting online grocery fulfillment in Europe allows Kroger to potentially leapfrog both Walmart and Amazon in this space".

USA supermarkets fear Amazon could apply its distribution know-how to Whole Foods, quickly turning the existing stores into a grocery delivery network. It has struck partnerships with Groupe Casino in France, Sobeys in Canada, and ICA Group in Sweden.

Kroger operates almost 2,800 stores in 35 U.S. states and has a turnover of more than $115 billion (£85 bn).

Ocado was also upbeat on the deal and its own abilities.

"This is clearly a transformative deal for Ocado, and one that is on a completely different scale to those announced in the past", said Numis analyst Andrew Wade. Kroger will also take a 5% stake in Ocado.

Ocado was founded in 2000 by Tim Steiner and two other former Goldman Sachs bankers and is best known as an online grocery chain delivering premium products.

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