Ocado Faces Crisis as Kroger Partnership Falters and Investors Lose Faith

Ocado shareholders had reasons to be concerned long before this autumn’s sharp downturn. The company’s partnership with US giant Kroger, once celebrated for its ambition to construct up to 20 automated warehouses across America, is now under threat. Kroger’s long-time chief executive Rodney McMullen, a steadfast ally of Ocado founder Tim Steiner, recently stepped down. His departure has signalled a shift in mood at Kroger’s Cincinnati headquarters, with new interim boss Ron Sargent admitting to a “hard look” at further investment in Ocado’s robot-powered warehouses. Shares in Ocado have suffered accordingly, hitting their lowest level in thirteen years.

This setback follows Kroger’s recent cost-cutting, including a thousand job losses announced after a failed mega-merger with rival Albertsons. The economic case for Ocado’s technology is now under question as Kroger pivots towards fulfilling more orders in store and reviews each site in its automated fulfilment network. Eight of the planned twenty US warehouses have been built, yet facilities in Florida and Texas are closing while the future of others is uncertain. Ocado’s once game-changing deal with Kroger now appears increasingly precarious, with consulting insiders warning that as much as half of Ocado’s embedded and future value is at stake.

Ocado has poured huge sums into its ambition to become the “Tesla of grocery,” providing high-tech solutions for other retailers. Its 2019 sale of a fifty percent retail stake to Marks & Spencer was regarded as laying the foundation for a broader international push. In practice, however, the hoped-for cascade of lucrative contracts has trickled rather than surged, with major clients like Canada’s Sobeys and Morrisons both scaling back or pausing their warehouse plans. Typical challenges remain: online grocery delivery is persistently unprofitable, casting doubt on the long-run value of Ocado’s technology.

Financially, the company has raised over £5.5 billion from investors and banks, three times its current market value, yet it continues to burn cash heavily. Pre-tax losses last year alone reached £375 million on turnover of £1.2 billion. Critics liken Ocado to a state-backed research institution rather than a profitable commercial operator, noting that it has never delivered an economic return since its 2010 flotation. Rising interest rates have exacerbated concerns about an overstretched balance sheet, with recent borrowings carrying double-digit interest rates to cover existing debt. Skepticism about profitability is mounting among both analysts and investors.

Not all believe the doom-laden predictions. Some argue that Kroger’s pullback could ultimately free Ocado to court new supermarket clients worldwide, should exclusivity agreements loosen. While US expansion hangs in the balance, European and Asian partners like Aeon have not signalled similar reservations. Tim Steiner is unwavering in his optimism, targeting cashflow positivity in 2027 and potential profitability soon after. Ocado’s fate now rests on whether its innovation can prove its worth in a sector notorious for razor-thin margins. Either way, the coming years will determine whether Ocado can shake off its “jam tomorrow” reputation and deliver for its shareholders at last.