Kroger’s e-commerce deal seen as a warning shot in food battle
If we look at the food battle today we would find that Kroger seems to be in a fighting position. The United States’ largest grocery chain has taken a great step on Thursday by teaming up with Ocado. Ocado is basically a British online grocer; it is famous for automated warehouses where robots quickly fill orders. Also, it gives a pathway to the supermarket giant to establish its own delivery network.
For the CEO Rodney McMullen- whose Cincinnati-based company is facing strong competition in an industry infamous for its tinny profit boundaries, it was the boldest move by e-commerce.
Jennifer Bartashus, an analyst at Bloomberg Intelligence, says that this has put Kroger on a completely different level. She thinks that it is undoubtedly a warning shot that Kroger is serious about online retail and grocery delivery.
Now this is very noble news for the investors of Kroger. They sent shares up to 1.4 percent on Thursday. Additionally, the stock had slipped 9.1 percent this year through Wednesday’s close.
Kroger, furthermore has been investing in its program, click-and-collect, which allows customers to order groceries online and pick them up in stores as an after effect of Amazon’s takeover of the organic grocer Whole Foods. They’ve also partnered with Instacart and other third-party delivery services.
Interestingly, the groceries that are bought online in U.S. make only 2 percent. Wal-Mart has been making costly investments in e-commerce to protect its grocery business, which generates more than half of its revenue.
However, the strong competitions have squeezed this company which has always put efforts to raise its prices. The chief matter of concern for Kroger is to how to adjust to the shift in e-commerce since it has more than 2800 stores.
Partnership of Kroger e-commerce and Ocado
Previously, Ocado had a small stake of Kroger in it, but later Kroger agreed to buy an additional 5 percent of the company and license its technology. Now this will directly help many other grocers run automated warehouses and deliver food. Additionally, Ocado shares surged 45 percent, giving more than $2 billion to the company’s market value.
Similarly, according to McMullen the past discussions of Kroger and Ocado regarding partnership are heating up these days. For that purpose the firms are seeking sites for three automated distribution centres. Moreover, they may open as many as 20 in three years.
It is said that Delivering groceries is more complex than selling books or video games. It is because right temperatures are needed to store food. The software of Ocado helps the trucks to take best routes because they deliver within one hour to customers. The partnership is about serving customers who are changing their grocery-buying habits for Kroger.