The Kroger Co., No. 17 in the Internet Retailer 2019 Top 1000, and British online grocery retailer and technology vendor Ocado Group plan to build a $55 million, 375,000-square-foot ecommerce fulfillment center in Forest Park, Georgia, that will use Ocado’s warehouse automation technology.
The new fulfillment center—which will serve the Atlanta metropolitan area—is part of Kroger’s plan to build 20 “Ocado-powered” warehouses in the United States. Last month, Kroger broke ground on the first of those facilities in Monroe, Ohio, near the retailer’s Cincinnati headquarters. In March, Kroger announced plans for a center in Lake County, Florida.
The new fulfillment centers have been in the works since last year. In May 2018, Kroger agreed to buy a stake in Ocado and license the British grocer’s automated warehouse technology, which is designed to fulfill online orders for delivery to consumers’ doors. The deal was Ocado’s first in the United States. Under the terms of the agreement, Kroger became Ocado’s exclusive U.S. partner.
Kroger’s Ocado deal is seen as a counter-move to Amazon.com Inc.’s 2017 acquisition of Whole Foods Market Inc. and the incorporation of the natural foods chain into the Amazon Prime rewards program. Amazon is No. 1 in the Top 1000.
Kroger expects to break ground for the Forest Park fulfillment center later this year and make it operational in 2021.
Kroger reported a 42% increase in online sales for its first fiscal quarter of 2019, ending May 25. However, start-up costs associated with new fulfillment facilities for online orders weighed down the gross margin during the quarter, according to CEO W. Rodney McMullen in a call with investors transcribed by Seeking Alpha. Kroger reported a gross margin of 22.2%, down slightly by 40 basis points. Other technology-related costs included those associated with Kroger’s Microsoft Corp. partnership, which made possible the rollout of digital shelf tags to allow for more flexible pricing.
Kroger is not Ocado’s only North American partner. In May, Ocado announced plans to build a second automated fulfillment center for Canadian grocery chain Sobeys Inc. The new center, in the Montreal suburb of Pointe-Claire, Quebec, follows a similar facility under construction in Vaughan, Ontario, near Toronto.