LONDON (dpa-AFX) - Ocado Group Plc. (OCDO.L) said that it has signed a partnership agreement with The Kroger Co. (KR) under which Ocado's technology will be used in the US exclusively by Kroger for grocery and other food distribution related activities. The objective of this partnership is to allow Kroger to redefine the grocery customer experience in the US through the adoption of the centralised, automated model of online retailing provided by the Ocado Smart Platform.
Ocado said it believes Kroger to be the grocer best-positioned to win in US grocery and will discontinue discussions with other US-based retailers. Kroger agrees to pay monthly exclusivity and consultancy fees which will offset in part the total fees that are expected to be agreed between the two parties; An overall services agreement will be negotiated to provide for the drawdown of multiple CFCs across the US, on the basis of standard Ocado OSP terms.
Ocado noted that Kroger will subscribe for up to 33.15 million new ordinary shares in the capital of Ocado, equivalent to 5% of the existing issued share capital of Ocado, at a value of 183 million pounds.
Kroger and Ocado are already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the US, and will identify up to a total of 20 over the first three years of the agreement. In the event of a failure to commit to the target capacity, Kroger will pay compensation to Ocado.
In the longer term, Kroger will retain exclusivity in the US conditional on it meeting market share targets or ordering an agreed number of CFCs per annum.
Ocado said it expects the earnings impact of this announcement to be neutral in fiscal year 2018. Ocado expects that the structure of the terms to be agreed with Kroger will be broadly similar per CFC to those agreed with Groupe Casino, Sobeys Inc. and ICA Group. Ocado and Kroger will, however, explore value neutral alternatives to normal fee structure to reduce the initial capital requirements for Ocado compensated by an appropriate reduction in ongoing fees.
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