An Ocado grocery delivery van is driven along a street in London, Britain, March 25, 2023. REUTERS/Toby Melville/File Photo
LONDON (Reuters) -Shares in Ocado, the online supermarket and technology group, fell sharply on Friday after U.S. partner Kroger signalled a potential retreat from investment in automated warehouses.
The stock was down 13% at 1140 GMT, extending losses over the last year to 18%, after Kroger's chairman and interim CEO Ron Sargent said the company was conducting a “site-by-site” review of its automated fulfilment network, built in partnership with Ocado.
The comments sparked concerns that Kroger may be cooling on plans to expand its network of robotic customer fulfilment centres (CFCs), a core part of Ocado's international growth story.
Sargent, who succeeded long-time boss Rodney McMullen in March, launched a strategic review in June of the group's e-commerce operations.
On Thursday, he told investors: "We're examining all aspects of our business to drive greater efficiency, including a full site-by-site analysis of our Kroger automated fulfilment network."
"We are taking a hard look at some of our automated facilities," he said.
Sargent also stressed the importance of fulfilling e-commerce delivery from stores.
Ocado struck a deal with Kroger in 2018 to help the U.S. retailer ratchet up its delivery business with the construction of robotic warehouses, or CFCs as Ocado calls them.
The initial deal saw Kroger identify 20 U.S. sites to build warehouses, making the group Ocado's most important partner.
However, so far, only eight sites have gone live, with a further two in the cities of Charlotte and Phoenix not due to open until early in Ocado's 2025-26 financial year, which starts in December.
"We thought the tone on CFC investment was cautious, with more focus seemingly on using existing store footprint," Barclays analysts said of Sargent's comments.
A spokesperson for Ocado said Kroger had highlighted in its second-quarter results on Thursday positive trends for growth and profitability in e-commerce.
"We are continuing to work closely with Kroger to drive this further and have made positive progress with the implementation of our new technology and the work of our Partner Success teams," the spokesperson added.
Kroger said it plans to update on its review during the third quarter.
In July, Ocado CEO Tim Steiner told Reuters he was confident Kroger would grow its e-commerce business under Sargent.
He said the U.S. remained "an enormous ongoing opportunity" for Ocado.
But he declined to comment on whether the exclusivity element of its deal with Kroger, which is conditional on growth, would roll off later this year.
(Reporting by James Davey, Editing by Louise Heavens)
