Ocado shares soared by as much as 75 per cent after a landmark deal with one of America’s biggest supermarkets transformed it into an international technology heavyweight.
The landmark deal for Ocado, which saw its value climb by more than £2billion, will see it provide Kroger with at least 20 warehouses and robotic technology for an online grocery delivery service.
It marks a first step into the lucrative US market, giving Kroger exclusive access to Ocado’s sophisticated warehouse technology.
And it was a major blow to hedge funds which believed that it would never strike a major deal and so bet against the company’s shares. They were nursing losses in the region of £100million (see below).
US drive: Ocado will provide Kroger with at least 20 warehouses and robotic technology for an online grocery delivery service
Kroger is the third-largest retailer in the world by revenue and has 2,800 stores with about 9m customers a day. Last year it pulled in revenues of £91billion.
The US grocery chain will also take a 5 per cent stake in Ocado, plugging it with an extra £183million in cash.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘Ocado is making great strides in the global grocery market, and inflicting serious financial pain on those who have bet against it.
‘It is known in the UK as an online supermarket, but that’s just the tip of the iceberg as Ocado is primarily a technology and logistics firm with the potential to license its services to grocers around the world.’
Ocado shares ended the day 44 per cent, or 245.2p, up at 797.2p. At one point they traded as high as 997p, before investors cash in their giant profits.
The deal marks a victory for chief executive Tim Steiner who has proven that he can land key deals with international supermarkets.
Steiner, 48, set up Ocado back in 2000 with Goldman Sachs colleague Jason Gissing and his lifelong friend Jonathan Fairman.
In 2016 he left Belinda, his wife of 14 years and mother of his four children, and moved in with the Polish lingerie model Patrycja Pyka, 20 years his junior.
Last month London Stock Exchange filings revealed Steiner used more than 25m shares as collateral for a loan to fund divorce obligations.
But he has been credited with turning Ocado into a stock market darling worth £5.4billion, putting it on the fringes of entering the FTSE 100 for the first time.
Steiner said the ‘transformative’ deal with Kroger will ‘reshape the food retailing industry in the US in the years to come’.
Traditional retailers are locked in a fight with online giant Amazon, which is aggressively moving into food sales.
Ocado has been on a roll since November when it secured its first overseas deal, with Groupe Casino in France. Shares have soared 150 per cent since, and it has scored contracts with Sobeys in Canada and ICA in Sweden.
Kroger and Ocado are looking for three sites this year for warehouses, and want 20 within three years. If Kroger does not fulfil that quest, Ocado can strike deals with rival supermarkets.
Ocado chief financial officer Duncan Tatton-Brown said: ‘One of the real benefits of announcing the deal is we can operate with more urgency, with more pace to hire more people and further improve our ability to execute deals like this.
‘We expect to do a lot more. This creates a sense of urgency for the companies we’re in talks with right now.
‘If you want to sign with us then you need to get on with it.’
The deal is expected to protect Ocado against the threat of a takeover from Amazon, which has been looking to expand its position in the UK grocery market ever since it bought Whole Foods for £10.3billion last year.
Amazon’s growing presence in grocery was a main reason behind the proposed £14.1billion Sainsbury’s and Asda merger.
Pioneering Robot Warehouse
Ocado’s warehouse in Andover spans 240,000 sq ft – around the size of three football pitches.
Hundreds of battery-operated robots swarm the factory, moving at four metres per second as they work together to round up orders.
It takes just five minutes to pick 50 items for an order, compared to two hours for a human.
The matrix: Robotic carts move around a grid preparing customers’ orders at the Ocado warehouse in Andover
The stock is stored randomly throughout the warehouse in crates, which are stacked up to 17 boxes high in a grid system.
Keeping the items at random was found to save time, although frequently purchased items are near the top of the stacks, and less popular ones near the bottom.
The robot pickers know exactly what item is in each crate at any given time and can pick the nearest items so one person’s shopping can be completed as quickly as possible.
Then when an order comes in, a robot – which looks like a box on wheels – is sent to collect the crate. It uses a claw to pick up the crate and drops it into a chute.
The crate travels down to a human who is told by a screen which item to take. They pack this in a bag into a second crate. The first crate is sent back to the grid, the second is sent to a waiting truck once the order is complete.
Deal hits hedge fund sharks for £100m
Vulture investors betting on the collapse of Ocado have been stung for more than £100million as its share price surged 44 per cent yesterday.
Hedge funds short-selling shares in the British firm – gambling that their value would plummet when it failed to deliver much-trumpeted international expansion plans – suffered as the stock price hit an all-time high when Ocado revealed the partnership with grocery chain Kroger.
Speculators which have suffered include the US goliath Blackrock and Chelsea-based Marshall Wace.
Their bets have for years made Ocado one of Britain’s most heavily shorted stocks.
Hargreaves Lansdown analyst Laith Khalaf said: ‘As one of the most shorted stocks in the UK stock market, this deal will be a poke in the eye for the hedge funds who have bet against Ocado because of its eye-watering valuation.
‘The short-sellers were hoping Ocado wouldn’t deliver on its international expansion plans – that position now looks like a badly busted flush.’