Ocado shares fell off a cliff to the lowest level in more than a decade this week as US partner Kroger revealed it planned to shut down three warehouses powered by the London-listed firm’s technology, dealing the group a crushing blow.
Kroger is expected to close the sites in Maryland, Wisconsin and Florida in January, with the move mooted to save the retailer $400m next year (although it would also be hit by a hefty $2.6bn impairment charge) as it expanded a relationship with Instacart to fulfil orders on the website.
Kroger said the automated fulfillment network had not met financial expectations.
Shares in Ocado plunged by more than 20% to lows of 167p at 1:30pm on Tuesday as Kroger announced the news.
Ocado rushed out a statement at just after 2pm in an attempt to calm markets, highlighting Kroger would continue to operate five CFCs in Ohio, Texas, Georgia, Colorado and Michigan where there were “higher densities of demand”.
The group also expected $250m in compensation related to the early closures of sites, which only opened in a period spanning 2021 to 2023.
The share price recovered some lost ground to trade around at 180p by the times markets closed. It means the stock is down 92% over the past five years and now has a market cap of less than £1.5bn.
Ocado talked up “constructive ongoing discussion” around the further use of its tech to support Kroger and said it expected “significant growth” in the US market.
Bernstein analyst Will Woods thought this would be “very difficult” for Ocado to achieve. He also worried Kroger would cancel the two CFCs due to open in 2026.
“We struggle to see Ocado getting further material partnerships in the US given the failure of the Kroger partnership,” Woods said.
Shore Capital’s Clive Black, a long-time Ocado bear, didn’t mince his words on what he called “a near knock-out punch” from Kroger.
He added the news was “a wow moment”, given the cost and relative recent opening dates for the CFCs.
Black called the decision by Kroger “a devastating blow to the credibility of the Ocado Group proposition”.
He added the move affirmed what Morrisons and Waitrose already knew: “capital intensive, centralised fulfilment of food to a dispersed mass-market customer does not financially work.”
Morrisons announced last year that it was phasing out deliveries of online orders from Ocado’s Erith CFC, and moving to picking in-store, while Waitrose split with Ocado in 2020.
“We are big fans of British entrepreneurs, British firms and, especially, successful British innovators,” Black said. “Alas, that cannot be wholly said of Ocado where the vision and aspiration was wonderful, as was the idealism with no shortage of brain power and masses of technobabble.
“Kroger, however, is a smelling salt moment for the group and we worry further about the real value of what is left in this firm.”
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