Kroger to pay Ocado $350M to shut down three sites

Not all robotics and supply chain partnerships end well. The Kroger Co. plans to give Ocado Group PLC a one-time payment of $350 million in January 2026, according to Reuters. This fee reflects the loss to Ocado of future capacity fees for three Ocado sites that the U.S. chain is shuttering.

Kroger is closing down three robotic warehouses and scrapping plans for another facility, Reuters reported. The retail chain will close its Ocado sites in Frederick, Md.; Pleasant Prairie, Wis.; and Groveland, Fla.

Kroger’s closing of the three sites will reduce Ocado’s fee revenue by around $50 million next year. In addition, the grocery chain will not proceed with plans to open a warehouse next year in Charlotte, N.C.

Despite these struggles, Kroger isn’t completely giving up on its partnership with Ocado. The company still plans to open a new site in Phoenix with Ocado’s new AutoFreezer technology next year.

Kroger and Ocado have a long and rocky partnership

Kroger and Ocado have been working together since May 2018. Kroger planned to build 20 customer fulfillment centers (CFCs) across the U.S. with the help of Ocado. These CFCs would support several “spoke” facilities for fast order fulfillment.

The retailer’s first CFC with Ocado went live in Cincinnati in April 2021. Today, over seven years after the agreement was inked, Kroger has eight CFCs live, including the three sites that it plans to close next year.

In 2023, the partnership started to hit some road bumps. Kroger announced in an earnings call that it would hold off on developing any new Ocado facilities until it ensured its existing facilities met expectations.

The next year, Kroger decided to close three facilities in Opa-locka, Fla., and in San Antonio and Austin, Texas, that worked in tandem with Ocado’s robotic fulfillment centers.

Outages with Ocado’s website, delays in order fulfillment, and even warehouse fires have dimmed the Hatfield, U.K.-based company’s prospects. It laid off 500 technology and finance staffers in February.

In September, Kroger announced it would conduct a “full site-by-site” analysis of the Ocado network to reduce costs and improve profitability. Now, the company is putting more emphasis on its store-level fulfillment than its robotic network.

Where does Ocado go from here?

Ocado got its start creating automated storage and retrieval systems (ASRS) for the grocery industry. In recent years, however, the company has been trying to bring more robots into the fold and expand its operations to new industries.

In July 2023, Ocado acquired 6 River Systems from Shopify, adding autonomous mobile robots (AMRs) to its portfolio for the first time. The company paid just $12.7 million to acquire 6 River Systems.

By comparison, Shopify had paid $450 million to acquire 6 River Systems in September 2019. In 2020, Ocado acquired two U.S.-based robotics companies for $287 million.

Earlier this year, Ocado also debuted its Porter pallet-moving AMR. This robot navigates warehouses to automate several workflows, such as cross-docking, bulk-item picking, putaway, and pallet movement.