Ocado has signed an agreement with Australian supermarket chain Coles to help grow its online grocery service.
The deal will see Coles gain access to the British group’s advanced Ocado Smart Platform (OSP) technology to develop robotic Customer Fulfilment Centres (CFCs) and store-picking systems.
The Australian group will spend up to A$150m (£81m) to build two automated CFCs based on Ocado’s model in Sydney and Melbourne. Ocado will be responsible for the installation of the handling equipment in the centres, including ongoing maintenance. The two facilities are expected to be operational by the end of 2023 with each having an estimated sales capacity of up A$750m (£405m) per annum.
Coles will also transition its existing store-pick based online operations to the Ocado platform with this to take place in parallel with the CFCs going live.
Coles expects the deal to approximately double its home delivery capacity in Australia and improve profit margins for its online offering. The retailer had annual sales of A$39.4bn (£21bn) in its last financial year with its online unit contributing around A$1bn (£0.54bn).
Coles will pay Ocado upfront fees upon signing and during the development phase, then ongoing fees linked to both sales achieved and installed capacity within the CFCs and service criteria. The agreement is exclusive in Australia as long as certain conditions are maintained.
After struggling for years to post a profit, Ocado now looks set to be a key player in the online grocery retailing market around the world having now signed five major overseas deals in less than 18 months. As well as Coles, it now has similar agreements with US group Kroger, Casino in France, Sobeys in Canada, and ICA in Sweden.
Steven Cain, CEO of Coles said: “Ocado is singularly focused on online grocery shopping and, as a result, has become the best in the world. We are delighted to be partnering with them to make life easier for Coles’ customers here in Australia. Ocado’s ongoing investment and retail partnerships around the world will help us continue to improve our offer into the future.”
Tim Steiner, CEO of Ocado added: “Today marks another big moment in the continuing transformation of Ocado. Our unique, proprietary and industry-leading technology is bringing new growth opportunities to retailers around the world and changing the customer experience of grocery shopping.”
Ocado said it expected the deal to create significant long-term value to its business with its shares rising nearly 5% in early trading this morning having more than doubled over the last year. The Coles deal comes just month after Ocado announced a major joint venture with Marks & Spencer.
NAM Implications:
- All adds to Ocado’s global appeal…
- …without the issue of retailer overlap.
- Key for Coles NAMs to assess the impact of the Ocado partnership on Coles performance…
- …and modify trade investment to suit…
