Kroger and Ocado Launch First Automated Fulfillment Center

Following an agreement established nearly three years ago, Kroger, a prominent U.S. supermarket chain, and Ocado, a U.K.-based online grocer, have unveiled their initial collaborative venture. Kroger has initiated operations at a newly established, Ocado-powered customer fulfillment center located in Monroe, Ohio, near Cincinnati.

This expansive warehouse spans 375,000 square feet and is equipped to handle the packing and delivery of Kroger orders placed by online customers. The facility boasts thousands of available products.

Robotics and Efficiency at the Core

The fulfillment center, referred to as “the shed” by Ocado, incorporates a vast grid system on its floor. Approximately 1,000 robots work in conjunction with 400 human employees to efficiently pick, sort, and transport items.

It is projected to facilitate as much as $700 million in annual sales, equivalent to the sales volume of 20 traditional brick-and-mortar stores.

Delivery Network and Logistics

Orders will be delivered utilizing temperature-controlled Kroger Delivery vans. These vans, modeled after Ocado’s U.S. fleet, are capable of accommodating up to 20 individual orders.

Delivery routes are optimized for speed and fuel efficiency through the implementation of Ocado software and advanced mapping algorithms.

The Rise of Online Grocery Shopping

The partnership between Kroger and Ocado gains prominence amidst the significant surge in online shopping, particularly accelerated by recent global events. The COVID-19 pandemic prompted a substantial shift towards online grocery shopping.

Consumers increasingly favored deliveries over in-store visits for their food and essential household needs, leading to increased competition among industry players like Amazon, Walmart, and other grocers.

Kroger's Growth in the Digital Space

This trend has positively impacted Kroger’s performance. Rodney McMullen, Kroger’s chairman and CEO, reported a 150% growth in delivery services for the company last year during a recent press briefing.

While some reversion to traditional shopping is anticipated as conditions improve, industry experts believe the convenience of online grocery shopping is here to stay, necessitating investment in infrastructure to meet evolving consumer demands.

Order Value Trends

Data supports this perspective. Tim Steiner, Ocado’s CEO and co-founder, noted a rise in average order value at Ocado, increasing from £105 ($144) pre-pandemic to £180 last year, and currently standing at £120.

Kroger’s Multi-Faceted Digital Strategy

Kroger is pursuing a comprehensive digital strategy, encompassing investments in Ocado technology and enhancements to in-store operations through collaborations with companies like Shelf Engine.

The company also maintains a grocery delivery partnership with Instacart, broadening its reach and service offerings.

Synergy Between Partnerships

Kroger’s collaboration with Instacart will continue, as it serves a wider geographical area than the current Ocado implementation, which is initially focused on Cincinnati and planned expansion into Florida.

The Ocado approach, while capital-intensive, may be best suited for Kroger’s more densely populated markets.

Strategic Alignment

Yael Cosset, Kroger’s CIO, emphasized the strategic importance of both partnerships, stating that Kroger intends to collaborate closely with both Instacart and Ocado.

Ocado’s Industry Leadership

Ocado, established in the U.K. in 2000, is widely regarded as a leader in the development and operation of online-only grocery businesses.

Expanding the Technology Platform

Rather than expanding its direct grocery business beyond the U.K., Ocado has focused on licensing its technology to other retailers. This involves ongoing development of robotic pickers and autonomous systems to enhance delivery efficiency.

Global Partnerships and U.S. Entry

Ocado’s technology is now utilized by partners in Japan (Aeon), France (Casino), and Canada (Sobeys). The Kroger rollout represents a significant step for Ocado into the U.S. market, while simultaneously providing Kroger with crucial infrastructure to compete effectively with major players like Walmart and Amazon.

Future Opportunities

It will be noteworthy to observe how Kroger leverages its expanded Ocado-powered infrastructure for other initiatives, such as its marketplace for third-party retailers, which directly competes with offerings from Amazon and Walmart.