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US supermarket chain Kroger Co. is stepping up its online delivery business with UK online grocery retailer Ocado Group Plc to boost its fighting chance against online retail giant Amazon.com Inc.

Striking a partnership deal with Ocado, Kroger has agreed to raise its stake in the Hatfield-based group to more than 6 percent, and to permit its technology to operate automated warehouses and process online orders.

The two companies stated that the locations for three new warehouses are expected to be determined by end of 2018, while 20 warehouse facilities in the US will be established over the next three years.    

The Kroger agreement is Ocado’s first and largest to date in the US, while it is the British supermarket’s fourth major deal with retailers in six months.

Kroger Chief Executive Rodney McMullen described the partnership as transformative, saying that it will bolster their efforts to redefine the food and grocery experience.

The deal provides the US second-biggest grocer the opportunity to further improve its digital and robotics capabilities, which will allow it to develop its own delivery network that will let customers order online at an automated fulfillment center that prepares groceries for home delivery anywhere in the US.

Intense Competition in the E-commerce Industry

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The partnership is seen as Kroger’s boldest move yet in the industry that is widely recognized for its slim profits margins.

Competition in the e-commerce market is growing intense, as pricing pressure puts a strain on profit margins, pushing grocers to team up with other grocers.    

Kroger’s collaboration with Ocado shows that American supermarkets could indeed use the help of British retailers to lift their online sales further.    

Being one of the first countries to see widespread execution of online grocery shopping, UK retailers got a head start in creating technologies capable of tackling the challenges of bringing food, especially fresh and frozen foods to a customer’s doorstep.     

Walmart and Kroger currently dominate the $800 billion US grocery industry, which has been thrown into turmoil, after Amazon’s $13.7 billion buyout of organic food seller Whole Foods Market Inc. last year left supermarkets scrambling to rival its home delivery service.

US supermarkets are worried that the Seattle-based company will use its delivery expertise to Whole Foods by turning existing stores into a grocery delivery network. Amazon already offers a free two-hour delivery service from a number of US stores for its Prime members.   

Despite that, experts have stated that even Amazon, which still has warehouses operated by human employees for its Fresh grocery delivery service, is still looking for the right model.

Kroger and Walmart each offer click-and-collect services in over 1,000 locations, according to analyst Jennifer Bartashus.

Digital offerings in the US are still in its early stages, representing only 1.5 percent of sales of packaged consumer products, compared with 7.5 percent in the UK, according to an international data firm, which expects the US’ e-commerce share to grow 8 percent by 2025.

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