Kroger’s automation deal sends Ocado shares up 50%

Kroger has signed an exclusive deal with UK online supermarket Ocado to use its technology in the United States.

Shares in Ocado shot up by more than 50% to a record high in London after the deal was announced Thursday.

Ocado has built a reputation for fast deliveries and high-quality customer service thanks to its complex web of logistics systems and warehouses run by smart robots.

The Kroger (KR) deal will see the American grocery giant take a 5% stake in Ocado (OCDGF) with an investment worth about £183 million ($ 247 million).

Ocado said it will begin setting up Kroger with various systems to help it manage warehouse operations, automation, logistics and delivery route planning in the US.

The companies will identify three sites in 2018 for development of new “automated warehouse facilities” in the United States, they said in a statement. A total of 20 will be identified in the first three years of the deal.

“Ocado believes Kroger to be the grocer best-positioned to win in US grocery and will discontinue discussions with other US-based retailers,” the companies said in a statement.

The deal should help Kroger compete with Amazon (AMZN), which has entered the grocery delivery market in a big way.

Ocado CEO Tim Steiner said he expected the “transformative relationship” to reshape the food retailing industry in the United States.

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Ocado, which has no brick-and-mortar stores, has warehouses that “are capable of collaborating to pick a typical 50-item order in a matter of minutes,” its chief technology officer, Paul Clarke, wrote this week.

“Applications of [artificial intelligence] and machine learning pervade this platform,” he said, noting the system helps predict changes in customer demand for its 50,000 items.

Ocado has signed a string of similar technology deals with major supermarkets in France, Canada and Sweden.

The Kroger deal is “an unmitigated positive in our eyes,” Barclays analysts said in a research note.

Ocado is considered a leader in online shopping and delivery in the United Kingdom.
Ocado’s stock market surge pushed the value of the company above £5 billion ($ 6.8 billion) on Thursday.