American grocery chain Kroger (NYSE: KR) announced on Thursday that it’s going to become part-owner of Ocado (LON: OCDO), the UK firm that’s been working to digitize grocery shopping for nearly two decades.
What does this mean?
Kroger’s been a bit of a laggard in the e-commerce explosion that’s recently engulfed the grocery world (and retail at large). Things arguably kicked off in earnest with Amazon’s (NASDAQ: AMZN) acquisition of Whole Foods last year, which now means you can order a fresh side of strawberries to go with your electric toothbrush.
Hot on the heels of Walmart’s (NYSE: WMT) double-down on e-commerce, Kroger’s making moves and snatching up a stake in Ocado, which has agreed to a deal to help Kroger improve its warehouse operations, automation and logistics planning facilitating the delivery of online grocery orders to Kroger’s nine million customers.
Why should investors care?
For markets: The deal lifted shares in Ocado a colossal 44%.
The Kroger deal is the latest, and by far the highest-profile, in a series of agreements Ocado has made to expand its business by licensing its tech to other grocers (which plenty of hedge funds didn’t think was a feasible plan). Ocado’s stock skyrocketed on news of the deal and even though it earns a pretty minuscule amount in profit, investors likely bought up the stock thinking more big deals could be in the pipeline.
The bigger picture: Many retailers want to gain ground by incorporating tech into their businesses.
US online grocery shopping is still pretty undeveloped — only 1-2% of US food spending happens online – while in the UK, the equivalent figure now totals 7% (likely a reason why Kroger was interested in swooping up Ocado’s tech). But tech in retail isn’t only about facilitating online ordering: Walmart, for example, wants to use a blockchain to simplify and control its complex international supply chains, while apparel retail firms are keen to use algorithms that predict your taste and encourage you to buy more.
This article was originally published by finimize.