Ocado Faces Setback as Kroger Scales Back US Warehouse Partnership

Ocado encountered a significant barrier to its expansion in the American market as Kroger, the largest grocer in the United States, announced it will shut three automated warehouses in January 2026 that rely on Ocado’s technology. This decision follows disappointing financial returns from these facilities. As a result, Ocado’s shares dropped by more than 17 percent, closing near its original flotation price of 180p, and the company will lose roughly 50 million dollars in fee revenue next year.

Ocado initially struck its high-profile partnership with Kroger in 2018, aiming to construct 20 advanced robot-operated customer fulfilment centres across the United States. Only eight of these centres opened as logistical and economic challenges mounted. The plan was to capitalise on the shift towards online shopping, but the realities of efficiently delivering groceries across sprawling states led to mounting concerns about the viability of Ocado’s business model in the US context. With just five centres remaining, uncertainty clouds the relationship’s future.

Kroger, adapting its strategy to reduce costs and improve profitability by an estimated 400 million dollars next year, is pivoting to “capital-light” delivery models. The grocer is strengthening ties with quick-delivery platforms like DoorDash, Instacart, and Uber Eats, favouring same-day delivery fulfilled directly from stores over the existing centralised warehouse approach. Kroger stated it will continue employing Ocado’s automated technology only where customer demand is densest and operational performance can be optimised.

Ocado’s international partnerships have also faced turbulence. Canadian retailer Sobeys ended its exclusivity agreement and put further expansion on hold. In Australia, Coles delayed the opening of new customer fulfilment centres, citing substantial cost overruns, though recent comments from its chief executive suggest performance has since improved.

Investor confidence in Ocado has been undermined by the setbacks. Once valued at 22 billion pounds during the pandemic’s e-commerce boom, Ocado has seen its capitalisation plunge to 1.52 billion pounds. Analysts have questioned the scalability and returns of Ocado’s capital-intensive warehousing technology, especially in vast and less densely populated markets such as the United States. They argue that while the automated systems offer technical superiority, this does not equate to financial viability in every geography or retail context.

The closures have not entirely severed ties between Ocado and Kroger. The remaining fulfilment centres in Ohio, Dallas, Atlanta, Denver and Detroit will persist, and Ocado expects over 250 million dollars in compensation related to the closures. However, the prospects for large-scale adoption of Ocado’s technology in the American market have dimmed.

These developments pose existential questions for Ocado and its ambitions to reshape global food retailing. The future now depends on whether focusing on high-density markets, where the economic case for automation is stronger, can restore momentum and investor trust.