Ocado has claimed a rare financial win after US grocery giant Kroger agreed to pay the British retail-tech group $350 million (£276m) in compensation, even as it scrapped another of the automated warehouses built around Ocado’s much-touted robotic fulfilment technology.
Shares in the FTSE 250 company jumped as much as 16% in early trading on Friday before settling nearly 7% higher, offering brief respite for a business that has seen its market valuation collapse from £22 billion during the pandemic boom to barely £1.6 billion today.
The payout follows Kroger’s decision to cancel the opening of a fourth Ocado-powered customer fulfilment centre in Charlotte, North Carolina, one of two facilities previously scheduled for 2026. It comes only weeks after Kroger said it would shut three other automated warehouses because they had “not met financial expectations”.
Kroger will proceed with five remaining sites, plus a sixth still due to open in Phoenix next year, but the retrenchment has deepened concerns about Ocado’s ability to scale its technology in the world’s largest grocery market.
What began in 2018 as a 20-warehouse vision to transform US grocery logistics has so far delivered just eight, and even those have struggled to overcome the formidable economics of long-distance food delivery across vast American territories.
Despite the mounting doubts, chief executive Tim Steiner maintained a bullish tone, saying Ocado remained “excited about the opportunity” in the US and was “investing significant resources” into supporting Kroger’s logistics operations.
Ocado said both companies remain committed partners and would focus on driving profitable volume through the remaining fulfilment centres.
‘If you were a future partner, you’d rethink’
John Hudson of Premier Miton Investors, a firm with a short position in Ocado, was blunt. “It doesn’t look great that Ocado’s biggest partner has started closing warehouses. If you were a potential partner going forward, you might rethink.”
Clive Black of Shore Capital went further, warning that Ocado’s credibility in securing future licensing deals had been “absolutely blitzed”.
“Any retailer looking at Ocado’s proposition is going to read the Kroger report, which basically said the partnership was economically unviable,” he said. “You’d need a pretty strange form of due diligence to ignore that and not call Kroger, or Waitrose, Morrisons or Sobeys, and ask why they pulled back.”
Each of those retailers has scaled back or restructured ties with Ocado in recent years.
The company, long derided as a “jam tomorrow” stock, has produced a full-year pre-tax profit only once in its 25-year history. It is also facing a significant refinancing deadline in 2027, with £350 million of convertible bonds and a £300 million revolving credit facility both falling due.
Its joint venture with Marks & Spencer, launched in 2020 after Ocado ditched Waitrose, has also been strained amid missed performance targets and a dispute over “true-up” payments.
Still, Steiner urged investors to take a long-term view: “Shareholders should only have invested if they believe that in the long term we’re going to be a profitable business,” he said.
For now, the business has secured a much-needed cash injection — but with Kroger trimming its commitment and other global partners cooling on Ocado’s model, the question remains: where does future growth come from?
