Shares in British online grocer Ocado suffered a dramatic collapse, falling more than 17% on Tuesday after its major American partner Kroger announced the closure of three automated warehouses.
Warehouse closures deliver blow to expansion plans
The announcement represents a significant setback for Ocado's international technology ambitions. Kroger, the fourth-largest retailer in the United States, confirmed it would close three customer fulfilment centres in Frederick, Maryland; Pleasant Prairie, Wisconsin; and Groveland, Florida come January.
This development strikes at the heart of the landmark 2018 agreement between the two companies, which envisioned building twenty state-of-the-art automated warehouses across the US. Currently, eight facilities are operational with two more scheduled to open next year.
Analyst describes 'near knock-out punch'
Clive Black, a retail analyst at Shore Capital, didn't mince words when assessing the impact. He described Kroger's decision as a "near knock-out punch" for Ocado, a characterisation that sent shockwaves through the market.
The share price decline pushed Ocado's valuation below 180p per share for the first time since its market debut in 2018. The dramatic fall wiped approximately £350 million from the company's market capitalisation in a single day.
Black elaborated that Ocado's technology model appears fundamentally flawed for mass-market adoption in countries like the US. "Most of its customer fulfilment centres do not work economically in the USA or the mass-market first world in truth," he stated.
Kroger shifts strategy towards hybrid model
Kroger explained its decision followed a comprehensive review of its operations. The retailer said it had "identified opportunities to optimise its fulfilment network" and would transition towards a hybrid approach.
This new strategy involves testing "capital-light, store-based automation in high-volume geographies" while maintaining automated warehouse processing only in areas with sufficiently dense demand.
The American grocer also revealed it had expanded partnerships with rapid delivery services including DoorDash, Instacart and Uber Eats. These services fulfil orders directly from physical stores using bicycles, mopeds and other small vehicles.
Financial impact and future prospects
Ocado confirmed it expects to receive more than $250 million (£190 million) in compensation for early termination fees related to the site closures. However, the company acknowledged its fee revenue would take a $50 million hit in the financial year ending December 2026.
In an official statement, the British technology firm sought to reassure investors: "Ocado continues to support Kroger to optimise logistics operations and drive profitable volume growth in these remaining sites, with constructive ongoing discussions around further use of Ocado's technology to support Kroger."
The company added that it "expects significant growth in the US market, both with warehousing and store based automation", indicating it hasn't abandoned its American ambitions despite this significant setback.
