Fry’s Food to build $89 million AI-infused fulfillment warehouse in Phoenix

Kroger Co., the nation’s largest operator of traditional supermarkets and parent company of Fry’s Food Stores, is set to build an $89 million high-tech warehouse in Phoenix that will fulfill online grocery orders.

Construction on the 222,850-square-foot building, which will be equipped with a series of robots with artificial intelligence, is expected to start this year. Once complete, Kroger (NYSE: KR) and Fry’s expect the warehouse – which the company refers to as a "Customer Fulfillment Center" or CFC – to change how it does online grocery delivery orders.

“Kroger is light years ahead with how they are delivering their products to their customers,” Chris Mackay, the economic development director at the city of Phoenix, told the Business Journal. Mackay’s office, along with the Greater Phoenix Economic Council and the Arizona Commerce Authority, helped Kroger in the site selection process and to secure incentives to build the project in Phoenix.

This high-tech fulfillment center is one of 20 Kroger is building around the country using technology from British company Ocado Group Plc. In 2018, Ocado and Kroger signed a partnership to build a handful of these CFCs – or sheds, as Ocado refers to them – in the U.S. that aim “to provide customers with anything, anytime and anywhere,” Kroger said. The first is set to open early this year in a suburb of Cincinnati; it is 335,000 square feet and represents a $55 million investment and 410 new jobs, according to Kroger. Another is set to open in 2021 in Florida.

"With Kroger we are developing a game-changing ecosystem for serving online grocery to customers across the United States. This includes Ocado's automated CFCs across a range of sizes, as well as software to optimize fulfillment in stores for curbside pickup," Luke Jensen, CEO of Ocado Solutions, said in a statement. "Powered by Ocado's state-of-the-art, proprietary technologies, this site will be crucial in bringing unrivaled online grocery experiences to homes across Arizona and wider geographies.”

The Phoenix CFC is expected to employ 692 people. The Phoenix City Council approved a measure Wednesday that will provide Kroger with up to $692,000 or $1,000 for every employee hired with an annual wage exceeding $44,000 in their second year of employment.

Mackay said the Council’s move is just the first step in this process. Kroger is expected to close on the land for the site this week and in a press release, Kroger said construction on the $89 million center will take about 24 months. The Phoenix payroll incentive and information given to the City Council was the first public information on this project. Many details, like the location of the center, have not been made public yet.

Mackay referred to the CFC as “a very technologically advanced center” that uses robotics to pick the products for customers. It also will have highly skilled human employees to ensure orders are correct and the technology is working as it is supposed to.

While being located in Phoenix, Kroger said the new CFC will help the company serve customers all over the state of Arizona.

“Our partnership with Ocado is and will continue to be rooted in our ability to deliver a value-added customer-centric solution that brings fresh food to customers through our seamless ecosystem,” said Gabriel Arreaga, Kroger's chief supply chain officer, in a statement.

While grocers have been working to advance online grocery orders and delivery for the last few years, it wasn’t until the Covid-19 pandemic when consumer demand for the service reached a critical level.

“The pandemic jump-started the grocery delivery industry, and it is not going back,” Mackay said.

Grocers haven’t found a way of fulfilling online orders that is extremely profitable yet. Either they are paying employees to manually go get all the items in a store or are partnering with another company that pays people to do that. But Kroger’s investment into Ocado and its AI sheds, show the company thinks it can turn these expensive projects into moneymaking machines.