Ocado says Kroger committed to build more warehouses despite roll-out slowdown

LONDON, March 28 (Reuters) - U.S. supermarket group Kroger Co is committed to building more automated warehouses in partnership with British online grocer and technology group Ocado, despite slowing a roll-out of sites, Ocado CEO Tim Steiner said on Tuesday.

Ocado struck a deal with Kroger in 2018 to help the U.S firm ratchet up its delivery business with the construction of robotically operated warehouses.

The initial deal saw Kroger identify 20 sites to build automated warehouses, or customer fulfilment centres (CFCs) as Ocado calls them, in the United States.

Kroger is currently live with eight sites, with 16 ordered so far.

"They are committed to building more, they just want to make those (existing) ones work as well as they can before they roll out loads – very sensible thing to do," Steiner told reporters.

He said Kroger remained "extremely positive" about the relationship, noting he visited the firm last week and will again in two weeks' time.

"They expect to have loads of these warehouses. But when you do something new, you need to make it work really well before you scale it up massively," he added.

Steiner was talking after Ocado Retail - Ocado Group's online supermarket joint venture with Marks & Spencer - reported first-quarter results.

While during the pandemic Ocado Retail didn't have enough capacity to meet consumer demand in the UK, it currently has surplus capacity, which represents a cost to the business in the short term.

In November, the planned build in Ocado's 2024-25 financial year of two new automated warehouses in the northwest and southeast of England was "paused", reflecting "a more prudent and disciplined approach to capacity roll-out".

Online grocery's share of the total grocery market in Britain was about 7% before COVID-19. It peaked at about 15% during the pandemic and has since come off to about 11%.

Steiner said last month he is convinced online penetration of the UK's grocery market will increase from the current level.

Shares in Ocado Group were down 4.6% in afternoon trading, extending losses over the last year to 60.4%. (Reporting by James Davey; Editing by David Holmes)