British e-commerce firm Ocado suffered a setback a few months back when Kroger decided to scale back the online fulfillment network the two companies had developed together. Now, Ocado is looking to link up with other U.S. grocers after refining its strategy.
Ocado’s exclusive agreement with Kroger concluded at the end of last year, and the technology company is courting new stateside retailers with a store-based automation system it’s developed. CEO Tim Steiner told Reuters he’s had “positive” conversations with U.S. retailers that are interested specifically in the new store-based system rather than the company’s larger fulfillment centers. He said Ocado’s goal is to test out the technology at several sites in the U.S. before staging a broader rollout.
Announced last year, Ocado’s store-based system holds around 20,000 products across 4,000 to 5,000 square feet of space. The setup utilizes the company’s grid-based robotics array and other technology operating in tandem with human workers. The sites, which can also operate as standalone facilities, feature pickup ports where drivers can gather orders for delivery.
The approach represents a notable shift for Ocado, which has made its name building cavernous fulfillment centers, like the ones Kroger has rolled out, that focus on next-day delivery. But that strategy has come under pressure as grocers globally and across the U.S. focus on their stores to fill online orders — a strategy driven by efficiency as well as robust consumer demand for same-day fulfillment.
Scaling down its approach brings Ocado into direct competition with other firms that make micro-fulfillment centers and other automated fulfillment technologies. Although MFCs have struggled to gain traction in the U.S. grocery industry, there are signs that small-scale automation could find a home in more supermarkets. Walmart acquired automation pioneer Alert Innovation in 2022, while Amazon is currently testing a micro-fulfillment center in a Whole Foods Market store in Pennsylvania that offers an expanded range of mainstream products.
During Ocado’s recent earnings call, Steiner said the company’s years of experience in grocery fulfillment give it an edge over competitors. He noted Ocado’s store-based automation system is viable for grocery stores that do $5 million or more in annual online sales.
“[I]f you’ve got $2 million, $3 million at a single site, don’t build store-based automation. It’s not going to have a return yet,” he said. “If you’ve got $5 million to $8 million annual [and] growing, it’s time to start considering building it.”
The stakes are high for Ocado. In addition to watching Kroger close three customer fulfillment centers and affiliated facilities, Canadian grocer Sobeys announced in January it would close a CFC it developed with Ocado in Calgary. Late last month, Ocado announced it would eliminate about 5% of its workforce, or around 1,000 jobs, the BBC reported.
