Kroger targets Washington D.C., Baltimore and Philadelphia markets with Ocado CFC

Date : 24 January 2020

Following an earlier announcement that it would open a Customer Fulfillment Centre (CFC) in partnership with Ocado in the mid-Atlantic region, Kroger has confirmed that it will be developed in Frederick, Maryland.

Six sites announced to date

Opening in this location will enable Kroger to target the populous northeast region, including Washington D.C., Baltimore and Philadelphia, with its grocery ecommerce solution. To date, the retailer has announced six locations for the CFCs, of up to 20 it could develop through its partnership with Ocado. These will support the growth of its grocery ecommerce business which currently includes store pickup, same-day delivery in partnership with Instacart and a next-day consumables shipping programme, Kroger Ship.

Source: IGD Research, Map Data © Google 2020

Targeting range of catchments

The 350,000 sq ft CFC will accelerate Kroger's ability to expand its products to a larger footprint. The facility, which employ 400 people initially, will become operational 24 months after the site breaks ground. The first site is expected to open next year. The sequencing of the announced locations is as follows:

  • Monroe, Ohio – this is located close to the retailer’s Cincinnati HQ and is set to become operational in 2021 following a ground-breaking ceremony last summer. This is core Kroger territory
  • Groveland, Florida – this site is expected to become operational in 2021. It is unique among the locations announced to date as the retailer does not operate any stores in Florida. Recently it divested its stake in Lucky’s Market, a natural and organic specialist that had expanded in the region with Kroger’s support
  • Forest Park, Georgia – expected to become operational in early 2022. Kroger has a strong physical presence in the region
  • Dallas, Texas – expected to become operational in early 2022. Kroger has a solid presence in Texas overall, but significantly stronger in Houston than Dallas
  • Pleasant Prairie, WI – expected to become operational in late 2022, core Kroger territory, driven by its acquisition of Roundy’s in 2015
  • Frederick, Maryland – expected to become operational in early 2023. The retailer has a strong presence in Washington and Baltimore through its Harris Teeter business, but no real presence in the Philadelphia market

East or west?

The initial strategy has been to target densely populated areas which the retailer hopes will provide the volume on which the model depends. The selected locations also indicate a degree of testing, focusing on areas where Kroger is the market leader, where it has lower penetration and where it has almost no physical presence. The west coast has not yet featured in its plans. However, it has businesses in California (Ralphs, Food 4 Less) and the North West (QFC, Fred Meyer), which could support its next move.

Mix of fulfillment models

With plans to develop up to 20 CFCs as part of the strategic partnership with Ocado, Kroger is placing a big bet on the potential of the US online grocery channel. We currently forecast it to reach $72.6bn by 2024. The channel is evolving at pace, with most retailers focusing on same-day delivery through partnerships with on-demand, third-party delivery platforms such as Instacart and Shipt. Others are looking to replicate Ocado’s automated model with store-based fulfillment. Ahold Delhaize and Albertsons have partnered with Takeoff Technologies to use its solution, Meijer has partnered with Dematic and Walmart is working with Alert Innovation. Given the diversity of the US, there is unlikely to be one winning solution. Retailers will use a mix of fulfillment models, depending on the density of their operations, which will also reflect the urban, suburban or rural nature of their catchments.

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