Kroger showcasing its online flexibility with Ocado automation
The latest expansion news shows the flexibility executives have long touted and indicates the partnership is off to a strong start. But there’s still a long way to go.
“When you look at micro-fulfillment centers, we would expect it not to be at quite the same level of profitability as central fulfillment centers (CFCs) because you have a lot of incremental work in terms of merging orders between store, and the facility itself.”
When Kroger announced its tie-up with Ocado back in 2018, the boldness of the venture was quickly tempered by a healthy dose of skepticism. How could the nation’s largest supermarket chain justify building massive, multimillion-dollar robotic fulfillment sheds to serve an opportunity that was still in its infancy in the U.S.?
The pandemic’s e-commerce mania has made Kroger’s investment look increasingly savvy. And that outlook looks even rosier following its expansion announcement Tuesday, when the company publicly committed to building five additional sheds, bringing its total to 16.
GroceryShop Keynote: Rodney McMullen, Chairman & CEO, The Kroger Co.
The news wasn’t so much in the number of facilities it said it would build as it was in the range of sizes and deployments. There will be small and medium facilities, a shed built to invade another new market, and a micro-fulfillment site in South Florida that will quickly fulfill a curated range of fast-moving goods.
The announcement gave the industry its first real look at the flexibility Kroger executives have long touted for its arrangement with the British technology company. It’s a multipronged approach that doesn’t simply rely on the lumbering facilities and next-day delivery that have been Ocado’s calling card up to this point, but that also incorporates smaller facilities, speedier service and interconnectedness across the network.
Kroger appears to be the first among Ocado's retailer service partners to announce a rollout of Ocado’s Zoom micro-fulfillment service, which launched in 2019 and is currently available in several West London markets. The automated facility, along with another smaller-sized shed, will serve a limited number of SKUs in as fast as 30 minutes, a nod to the growing focus on speedy, needs-driven delivery, particularly among younger consumers.
Seeing “Kroger” and “micro-fulfillment” together in the same announcement immediately piqued our interest at Grocery Dive — so much so that we chose to focus our coverage Tuesday on the Florida buildouts ahead of the also-significant news that Kroger is pushing into the Northeast for the first time with a customer fulfillment center (CFC). But before we, and others in the industry, begin imagining a vast network of Kroger/Ocado MFCs across the country, it’s helpful to bring up the companies’ previous comments about the technology this spring.
"When you look at micro-fulfillment centers, we would expect it not to be at quite the same level of profitability [as CFCs], because you have a lot of incremental work in terms of merging orders between store, and the facility itself," Kroger Chairman and CEO Rodney McMullen said during an April press call.
"[MFCs] are more expensive to operate than large sites," Ocado CEO Tim Steiner said on the same call.
