Ocado shares plunge as Kroger signals review of warehouse strate

Ocado, the British retail technology group, suffered a major blow to its US ambitions after its American partner Kroger announced a thorough review of its automated warehouse network. Shares in Ocado plunged almost 20 per cent, erasing over half a billion pounds from the company’s market value, following Kroger’s statement that it would be taking a “hard look” at investment into further robotic distribution centres.

The partnership between Ocado and Kroger, established in 2018 to deliver state-of-the-art automated fulfilment centres across the United States, initially promised twenty sites. To date, however, only eight are operational. Ronald Sargent, Kroger’s chairman and interim chief executive, informed analysts that the group was conducting a site-by-site analysis of its automated distribution facilities in an effort to improve overall profitability. Sargent commented that facilities in urban areas with greater density tend to outperform those in regions where customer uptake has proved slower.

The turbulence in the relationship comes against a backdrop of leadership change and strategic review at Kroger. Sargent ascended to the top role following the resignation of long-serving chief executive Rodney McMullen, who departed after an investigation into his personal conduct. Kroger has since launched a company-wide review of its ecommerce operations, with findings due to be shared later in the year.

Ocado co-founder Tim Steiner, who remains bullish on the long-term opportunities in the US market, recently visited Kroger’s leadership to reaffirm the possibilities for its robotic warehouse technology. Steiner maintains that automated facilities hold the potential to transform Kroger into the leading ecommerce supermarket in America. Analysts, however, remain less optimistic, with some suggesting that the capital intensity of robotic warehouses and shifting consumer preferences towards faster, store-based delivery may undermine the strategy’s economics.

Recent setbacks have weighed heavily on Ocado’s prospects. In Canada, the company’s partner Sobeys recently paused its own expansion of robotic warehousing, while in the UK, its tie-up with Marks and Spencer has suffered from missed targets. This latest development in the United States amplifies questions about the long-term durability of Ocado’s model and its ability to scale profitably outside its home market.

Market observers believe that while Kroger is unlikely to scrap its agreement with Ocado, any future expansion of automated warehouses appears improbable for the near term. With Ocado’s fortunes so closely linked to the American retailer’s strategy, the coming months will be crucial in determining whether the promise of robotic fulfilment can deliver lasting rewards for shareholders and grocery consumers alike.