Kroger 'quietly' opens first automated Ocado e-grocery fulfillment center

Kroger Co. has opened the first of its 20 planned huge automated warehouse/distribution facilities in partnership with British online grocery delivery company Ocado.

Cincinnati-based Kroger, the largest US operator of traditional supermarkets, quietly opened the facility in Monroe, with the first order being shipped from the facility Wednesday, Kroger CEO Rodney McMullen said Thursday during a conference call to discuss the company’s fourth-quarter results.

McMullen referred to the Ocado facility, which Kroger refers to as a “shed,” as having a “soft opening.” The company will host a grand opening for the highly anticipated facility’s launch soon.

The Monroe facility is a $55 million, 335,000-square-foot behemoth that will employ more than 400. Kroger broke ground on the building in June 2019.

Kroger will use Ocado’s automation technology in Monroe and elsewhere around the country to select from shelves the products ordered by customers pickup and delivery as well as for in-store sales.

Kroger plans to open other Ocado sheds this year, McMullen said. Those will be combined with smaller regional distribution facilities, he added.

Kroger expanded its relationship with Ocado late last year. That expansion involves using Ocado’s proprietary software combined with Kroger’s technology to help employees assemble customers’ orders. It’s intended to make that process easier and more efficient.

Kroger aims to “build a seamless ecosystem that combines the best of the physical store experience with the digital experience," Yael Cosset, Kroger's chief technology and digital officer, said at the time. "Ocado's in-store fulfillment capabilities, leveraging (artificial intelligence), will further contribute to continuous improvement of the customer pickup experience.”

Kroger has high hopes for the impact of the Ocado facilities as they come online, starting with the Monroe location on Ohio 63, about two miles west of Kroger’s Monroe store.

“Ocado brings automation and reliability to pickup and delivery that is unprecedented,” Cosset told me at the groundbreaking ceremony. “There is no substitute for the quality of experience that Ocado and Kroger will bring to market together. And Ocado is a very fast innovator compared to other technology companies, so we’ll benefit from not only what they’ve built already but what we’re intending to build together.”

Ocado Solutions CEO Luke Jensen said at the groundbreaking ceremony Ocado has developed powerful capabilities over its 18 years in business.

“Inside the facility will be robotic technology that allows us to distribute stock in a highly dense storage facility and then retrieve that stock to prepare orders,” Jensen said. “Behind that stock is a hell of a lot of code. We’re entirely devoted to how do you do grocery online at its best.”

Kroger group vice president of corporate affairs Jessica Adelman said at the groundbreaking event the Ocado shed is a “truly historic, first-of-its-kind” automated warehouse facility.

Kroger executives also discussed during Thursday’s conference call:

• Digital sales. Not only did they grow 118% in the quarter but the profitability on those sales rose more than 20% in the quarter, CFO Gary Millerchip said. Kroger was able to lower its cost to deliver digital orders.

• Employee pay. Kroger’s pay increases raised the average hourly worker pay to $15.50 from about $15 a year ago. Including benefits, the total compensation for employees now tops $20 per hour, Millerchip said.

• Alternative profits. “We would expect alternative profits to continue to be a driver,” McMullen said. Those profits rose in 2020 and are likely to be a bit lower in 2021 but “very similar,” McMullen said. Kroger Personal Finance results should rise as customers buy more gift cards than they did during the pandemic last year. Retail media, through which Kroger sells advertising opportunities in stores to consumer product companies, has been a boon.

“Retail media has been incredibly effective for us,” McMullen said. “We think that will continue to be an important part of the model.”

• Shopping trends that will continue. Customers are upgrading in the quality of products they buy. McMullen called it “incredibly exciting,” citing growth in its Private Selection brand and seafood sales.

“I think once you get addicted to something that’s high-quality, it’s hard to go back,” McMullen said. “A small example: I remember growing up I thought macaroni and cheese came out of a box and that was fine. Now I buy my cheese for macaroni and cheese from (Kroger-owned in-store shop) Murray’s Cheese and it’s a completely different experience. Once you get used to that experience, it’s hard to go back. I think customers will continue to have those behaviors.”