Kroger inks Ocado grocery delivery deal to battle Amazon threat

Kroger who has the second biggest grocer in the US after Walmart also agreed to buy a 5% stake in the UK online supermarket

US-based retailer Kroger will be using Ocado's Smart Platform technology to power its online food and grocery deliveries.

Tim Steiner, CEO of Ocado Group added: "Ocado's unique, proprietary and industry-leading technology is set to transform the shopping experience of consumers around the world".

'The opportunity to partner with Kroger to transform the way in which USA 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.

James Zimmerman, the best performing manager in Citywire's UK Smaller Companies sector over the past year, holds 2.8% of his £297 million Jupiter UK Smaller Companies fund in Ocado, his third largest position.

In the longer term, Kroger will retain exclusivity in the USA conditional upon its meeting market share targets or ordering an agreed number of fulfilment centers per year.

The U.S. grocery chain announced Thursday its alliance with Ocado and its plans to bring the British supermarket's "unparalleled technology" to the United States. Ocado will be Kroger's exclusive partner stateside.

Kroger and Ocado are looking for three sites to develop automated warehouses in the US, with up to 20 such facilities planned in the next three years.

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Ocado's first USA licensing pact marks Kroger's response to Amazon.com Inc.'s purchase of Whole Foods Market Inc. This will bring the company's total investment to more than 6%.

Ocado' s biggest deal to date, is the latest in a series of tie-ups by the online retailer.

In 2016, it was reported that Ocado was close to a deal with Kroger's rival Publix.

Kroger CEO Rodney McMullen, meanwhile, said the deal would "speed up our efforts to redefine the food and grocery customer experience". It has already inked agreements with Sweden's ICA, Canada's Sobey's and French supermarket operator Casino.

It has even said it will pay compensation if it fails to hit the capacity targets the two retailers have agreed.

The number of distribution centers Kroger is committing to is "materially ahead of anything we had expected", wrote Bruno Monteyne, an analyst at Sanford C. Bernstein.

The surprise deal and jump in the share price caught out many hedge funds betting the next move would be down.

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