Ocado poised to break America with Kroger deal

The City on Thursday cheered online supermarket Ocado as it signed a “Holy Grail” deal in America to sell its robots and software to Kroger, one of the world’s largest grocers.

The move dwarfs Ocado’s most recent agreements with Casino in France, Canada’s Sobeys and ICA in Sweden to sell its white-label online shopping technology. It will build up to 20 warehouses in the first three years and “they need to commit to more than that” thereafter, said finance chief Duncan Tatton-Brown.

Kroger, which has revenues of $122 billion (£90 million), will have a 5% stake in the FTSE 250 business, worth £183 million, on top of an existing 1% stake. However, if the retail giant fails to hit the volume targets it will lose exclusivity and it will have to pay compensation to Ocado.

“We are optimistic that we can fund it without going to share- holders,” said Tatton-Brown. Ocado recently tapped investors for £140 million.

Shares jumped 42% to 782p, although Ocado said it expected the deal to have a neutral impact on its finances this year.

“Ocado’s £5 billion market cap now puts it on the fringes of the FTSE 100 although management now has to prove it can turn the technology partnerships into profit and cash flow, so the hard work may be just beginning,” said Russ Mould of AJ Bell.