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Ocado is set to power a new online grocery delivery service for Canadian conglomerate Empire Company Limited.

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Online retailer Ocado has announced a partnership with Coles to develop its online grocery business in Australia. This is the fifth international partnership for the Ocado Smart Platform in less than 18 months.

Developing Coles’ online business

Coles is one of Australia’s largest grocery retailers, operating 818 supermarkets across the country. The retailer is already a market leader in online grocery retailing in Australia with its Coles Online business and over AU$1bn of annual sales. Ocado will allow Coles to use its ecommerce platform for grocery and other food distribution related activities in Australia on an exclusive basis. The new deal will see Ocado’s technology and software develop Coles’ online grocery business in Australia.

The two companies will build two automated customer fulfilment centres (CFCs) as part of the deal, one in Sydney and one in Melbourne. Coles will invest up to AU$150m building these CFCs and on upfront costs to Ocado. Coles expects the partnership to approximately double its home delivery capacity.

Through Coles’ new partnership with Ocado, it hopes to better serve its customers in Australia’s larger urban areas through fulfilment from Ocado’s CFCs, while customers in less populated areas will benefit from Ocado’s store-pick software.

The agreement comes as retailers continue to scale up in the online channel to meet the challenge of ecommerce competition.

Ocado’s international expansion

Ocado's role as a provider of retail technology is continuing to gain momentum. The Coles partnership is Ocado’s fifth international deal in less than 18 months, following its partnership with Bon Preu Group in July 2018, Swedish retailer ICA and US retailer Kroger in May 2018, and Canadian retailer Sobeys in January 2018.

The Coles deal follows Ocado’s announcement of a £1.5bn retail joint venture with Marks and Spencer in the UK.

To understand more about how the two retailers operate, check out the Ocado and Coles retailer hubs.

Kroger will open its second Customer Fulfilment Centre (CFC), as part of its strategic partnership with UK-based Ocado, in Groveland, Lake County, Florida.

Entering the market with an ecommerce-only model

Kroger announced in February that one of its first three CFCs would be in Florida, with other sites being developed in Ohio and the Mid-Atlantic region. The decision to site one of the CFCs in Florida is particularly interesting because the retailer does not currently operate any stores in the state. However, it does have a strategic relationship with Lucky’s Market which has been expanding at pace in the region.

Source: Kroger

Will determine feasibility of operating in the north east

Last year, Kroger formed a strategic partnership with Ocado to develop up to 20 CFCs. These will support the growth of its grocery ecommerce business which currently includes store pickup, same-day delivery in partnership with Instacart and a two-day consumables shipping programme, Kroger Ship. The 375,000 sq ft site in Florida is expected to become operational in 2021. The success of an ecommerce-only model in the state will determine where else the retailer could penetrate without opening any physical stores. The high density, yet competitive, north east is likely to be within the retailer’s sights.

Different models under development

Kroger is adopting a relatively unique approach to ecommerce fulfilment in the US through its Ocado partnership. Several other models are being piloted as retailers seek to build a cost optimal solution. Walmart, Ahold Delhaize and Albertsons are piloting hyper-local robotic fulfilment while most US grocers are partnering with third-party crowd-sourced delivery platforms for same-day delivery. Instacart, the leading operator in this space, will start to roll-out a store pickup model this year. With the channel forecast to hit $60bn by 2023, building a profitable and scalable model is critical for retailers aiming to maximise the sales growth opportunity.

Ocado plans to build a state-of-the-art customer fulfilment centre to replace the Andover facility that burnt down in February.

In Ocado's recent trading statement, CEO Tim Steiner said, “The fire has been a setback, but it will be only a temporary one. Over the last few weeks, our teams have been working hard to minimise any disruption to our customers and we will build a state-of-the-art replacement facility that reflects all the innovations and improvements we have made since Andover opened in November 2016.”

Solid results, despite the setback

The news came as the company saw strong growth of 11.2% in the 13 weeks to 3rd March 2019. However, numbers were impacted by the fire in February, equivalent to almost 1.2% of sales over the quarter.

Following the fire at Ocado’s Andover CFC in February, Ocado announced that efforts are being made to minimise the disruption to consumers through providing more CFC capacity, including growing its capacity in its Erith CFC earlier than originally planned.

Initial findings…

Ocado is undertaking a thorough examination of the causes of the Andover fire, stating “Our initial assessment of the reasons for the fire gives us confidence that, going forward, there are no significant implications for the risk profile of the assets or the viability of our model and therefore for either Ocado Retail or Ocado Group.”

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