The Kroger Co. aims to enter the Northeast through its e-commerce partnership with United Kingdom-based Ocado Group.
Kroger said Tuesday that it plans to offer Kroger Delivery online grocery service in the Northeast by building an Ocado-powered automated customer fulfillment center (CFC) to fill digital orders for same-day and next-day delivery. The Cincinnati-based supermarket giant currently operates no brick-and-mortar stores in the region.
In addition, Kroger announced plans to open two CFCs in Southern California and add two more in Florida. The company said the California facilities — one medium and one small — will expand its current online grocery operations and boost capacity for on-demand delivery.
Meanwhile, two small CFCs are slated to be built in South Florida, joining live operations in Central Florida that include a 375,000-square-foot, full-size CFC in Groveland and spoke sites in Tampa and Jacksonville. Kroger said the new sites include a “Zoom” micro-fulfillment center that will enable Kroger Delivery service in as soon as 30 minutes from a selection of 10,000 fresh food items and essentials, plus a larger facility offering same-day and next-day service from an assortment of 35,000 items. The opening of the Groveland CFC in June marked Kroger’s debut in Florida, where it has no physical stores.
Kroger didn’t specify locations or sizes for the planned CFCs in the Northeast, California and Florida but said it will provide more details in the coming months, including opening timetables, coverage areas and job creation.
“Kroger Delivery is a thriving part of our dynamic ecosystem and is transforming grocery e-commerce and meeting a range of customer needs through the introduction of first-of-its-kind technology in the U.S. developed by Ocado,” Kroger Chairman and CEO Rodney McMullen said in a statement. “Kroger’s growing seamless ecosystem continues to scale, and we’re committed to doubling both our digital sales and profitability rate by the end of 2023. And Kroger Delivery will help us reach this target.”
When unveiling their partnership in May 2018, Kroger and Ocado said they aimed to open 20 CFCs in the United States over the next three years, with Kroger executives citing the potential for facilities in markets where the company doesn’t have stores.
“We feel great about the momentum we’re experiencing with Kroger Delivery and our partnership with Ocado and are strategically leveraging our assets to expand our operations in existing regions, as well as enter new geographies on the East Coast that leverage facilities across a growing range of sizes,” McMullen added.
Before announcing the five new CFCs, Kroger had announced 10 Ocado warehouses, with sizes ranging from 135,000 to 375,000 square feet. Besides the Monroe and Groveland CFCs, they include locations in Forest Park, Ga.; Dallas; Frederick, Md.; Phoenix; Pleasant Prairie, Wis.; and Romulus, Mich., as well as two unspecified sites in the Pacific Northwest and West.
The company also said it plans to build a CFC at an unspecified site in the South and previously reported that up to six more CFCs are slated to open across the country in 2022 and 2023.
“I am delighted that we’re bringing Ocado’s world-leading technology to Kroger customers across the U.S. The Northeast is another new geography for Kroger, and we’re excited to enter it with them. Moreover, with the addition of fulfillment centers in Southern California, our partnership is truly revolutionizing the U.S. grocery online landscape from coast to coast,” stated Luke Jensen, CEO of Ocado Solutions, which has its U.S. headquarters in Tyson, Va.
“Kroger is also leveraging the full breadth of Ocado’s fulfillment capabilities to meet the growing range of customer wants and demands,” Jensen noted. “Alongside the current rollout of our automated facilities and software to optimize fulfillment in stores for curbside pickup, today’s announcement of a further CFC in Florida and the introduction of our first ‘Zoom’ micro-fulfillment site in the U.S., serving the immediacy market, is a testament to the breadth and flexibility of the offering we are helping to bring to Kroger shoppers. These fulfillment centers will also benefit from significant upstream efficiencies, with the existing CFC in Groveland able to act as a major supply hub into the new Florida sites.”
The Ocado CFCs use automation and artificial intelligence to service online grocery orders, and the facilities are expected to expand Kroger’s products to a larger geographic footprint, including in areas where retailer doesn’t operate stores.
For example, in the Monroe CFC, more than 1,000 bots containing totes with products and ready customer orders dart across huge 3D grids — known as “The Hive” — managed by air-traffic control systems. When order delivery times near, the bots retrieve the products from The Hive and bring them to pick stations, where items are sorted for delivery. Algorithms control the pick-and-sort process to ensure that products are packed intelligently, with fragile items on top and bags evenly weighted. Next, packed orders are loaded into a temperature-controlled Kroger Delivery van that can hold up to 20 orders. Machine-learning algorithms weigh factors such as road conditions and fuel efficiency to optimize delivery routes.
Shoppers place their orders via Kroger.com or the Kroger mobile app. Each Ocado CFC covers a delivery radius of up to 90 miles. Depending on its size, a CFC can equal the sales of about 20 stores, according to Kroger. At full capacity, annual sales per module — the Monroe CFC has seven modules — are projected at $80 million to $100 million. The Kroger Delivery network also will include smaller facilities and spoke locations that will extend the area served by each CFC beyond its 90-mile range.
“The acceleration of Kroger Delivery continues with these new facilities, and our continued focus on creating career opportunities and serving customers through interconnected, automated and innovative fulfillment models that cater to different and accretive grocery shopper missions in both new and existing geographies,” commented Gabriel Arreaga, senior vice president and chief supply chain officer at Kroger. “We have a pipeline of sites in development across the U.S., with several scheduled to open next year, and we’re excited to continue delivering the Kroger experience to more doorsteps.”
In its e-commerce business, Kroger has doubled its household penetration since 2019, raising the number of brick-and-mortar customers engaging with its digital solutions, McMullen said last month in reporting fiscal 2021 second-quarter results. That gain includes more than 340,000 new digital customers in the second quarter. The company finished the quarter with 2,239 pickup sites and 2,546 delivery locations, covering 98% of the households in its market area. Digital sales have remained elevated, up 114% on a two-year basis through the quarter’s end.