US grocer Kroger’s online delivery deal sends Ocado shares rocketing

Key Points
  • Kroger and Ocado have sealed a deal to develop online delivery.
  • The U.K. logistics tech firm is betting Americans will switch to online grocery shopping.
  • Ocado shares have surged more than 60 percent after the deal.
Kroger to use Ocado’s home-delivery tech

Ocado shares have surged more than 60 percent after the U.K.-based online retailer signed an exclusive deal to provide its grocery delivery service to U.S. retailer Kroger.

Kroger, which had sales of $122 billion in its last fiscal year, will take a 5 percent stake in the British online delivery firm as part of the agreement.

Kroger Chief Financial Officer Michael Schlotman told CNBC's "Squawk Box" Thursday that the deal offered a number of benefits.

"It is not just online selling to customers, they have capabilities that will also help us provide piece pick items to our stores so that will help our logistics," he said.

Ocado is to work with Kroger to identify and roll-out up to 20 robotic warehouses across the U.S. over the first three years of the agreement. Although automated, each warehouse will employ around 600 people each.

Schlotman said it will be a "relatively slow" process with each site taking around two years as the firms identify locations, secure permits and then build the warehouses. Following that, Ocado will install the robotic technology.

Opportunity in the US is tremendous: Ocado CEO

Luke Jensen, CEO of Ocado Solutions, told CNBC's Joumanna Bercetche on Thursday that getting into the U.S. market would prove a tremendous opportunity as Americans warmed to the idea of online deliveries.

"The grocery online market in the U.S. has been relatively underdeveloped compared with some European markets. It represents less than 2 percent of the total grocer market, versus 7.5 percent in the U.K., but is now growing very fast and is an enormous growth market," he said.

Jensen added that the recent Amazon tie-up with Whole Foods proved that the U.S. grocery market is changing and that people want to both order online and shop in-store.

The deal is the latest in a series of tie-ups announced by Ocado recently. It has already inked agreements with Sweden's ICA, Canada's Sobey's and French supermarket operator Casino.

Jensen told CNBC he was "very comfortable" that the necessary financing is in place to fulfil all of the contracts.