17th May 2018 08:23
LONDON (Alliance News) - Shares in Ocado Group PLC ignited Thursday, after the British online supermarket announced plans to enter the world's biggest grocery market, the US.
The stock was up 39% at 769.60 pence at start of trading in London, comfortably the top gainer on the FTSE 250 Index of mid-caps.
Ocado has signed a technology sharing and investment partnership pact with Kroger Co, the second-largest general retailer in the US. The deal gives Kroger exclusivity in groceries for the Ocado technology in the US.
As part of the partnership pact, Kroger will invest GBP183 million in the online supermarket and will use Ocado's technology for grocery and other food distribution related activities in the US. It will pay monthly exclusivity and consultancy fees for using Ocado's technology.
Kroger is subscribing for around 33.1 million new ordinary shares of Ocado, equivalent to 5% of the company's existing issued share capital.
"The objective of this partnership is to allow Kroger to redefine the grocery customer experience in the US through the adoption of the centralised, automated model of online retailing provided by the Ocado Smart Platform," Ocado said, adding that it has decided to discontinue discussions with other US-based retailers.
Kroger and Ocado are currently working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the US. The companies plan to open up to a total of 20 automated warehouses in the first three years of the agreement. Kroger has agreed to compensate Ocado if it fails to commit to the target capacity.
"The opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger's customers and create value for the stakeholders of both Kroger and Ocado. As we work through the terms of the services agreement with Kroger in the coming months, we will be preparing the business for a transformative relationship which will reshape the food retailing industry in the US in the years to come," Ocado Chief Executive Tim Steiner said.
Ocado expects the earnings impact of the Kroger agreement to be neutral in 2018. It expects to structure the Kroger agreement broadly similar to agreements signed with other retailers around the globe.
Earlier this month, the company agreed to build Swedish supermarket ICA's online grocery business. It also has signed similar agreements with Canadian grocer Sobeys and French supermarket chain Groupe Casino.
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