Kroger finally realizes it needs tech to survive

Brick and mortar retailers are waking up to the need for digital and smart technologies to compete against online retail giants.
24 May 2018 | 3437 Shares

A technician prepares a “Bot” to be returned to the “smart platform” at the Ocado CFC (Customer Fulfilment Centre) in Andover. Source: Reuters

In the digital era, high street retailers face tough times.

Famous British brand Marks and Spencer’s, for example, has announced plans to close up to 100 stores in the UK by 2022 after its profits plummeted over 60 percent.

Frankly, retailers must digitize or die.

Just last week, American retailing giant Kroger announced a deal with British online-only grocer Ocado that will help it harness automation and AI to improve its bottom line.

Kroger has agreed to raise its stake in Ocado Group PLC from 1 percent to more than 6 percent and license technology from the British company to run automated warehouses and process online orders.

According to The Wall Street Journal, the move to partner-up was in direct response to Amazon’s Whole Foods US$13.7 billion takeover last year. To keep up with one of its biggest competitors, Amazon, Kroger’s chief executive Rodney McMullen sees the value in investing in what Ocado calls the world’s most sophisticated automated grocery warehouses.

“They’ve [Ocado] done an incredible job over the years continuing to improve the experience for the customers and the economics as well,” McMullen said in an interview last Thursday.

Jointly, the firms say they will announce locations for three new warehouses and another 17 over the coming three years which Ocado will operate. The investment made by Kroger is worth more than GBP183 million (US$247.2 million) according to reports.

McMullen recently told The Street the company will continue to outsource with partnerships  “when it accelerates the journey we are on and we believe someone else could do it better than us.”  Ocado’s technology clearly fits the bill.

“Ocado’s ‘sheds’ use a lot of technology and robots very efficiently to help pick orders and then they use machine learning to deliver that to their customers. It understands traffic patterns and keeps getting better,” he told The Street.

The British retailer is famous for its warehouses run by robots informed by algorithms and machine learning that control thousands of boxes at the same time.

Powered by 4G, the robots essentially pick the groceries for each order and navigate around the warehouse. Beyond a few maintenance personnel, the warehouses are completely human-free.

Kroger has focused its online shopping efforts on hundreds of store sites where customers buy online and then pick up in store.

Ocado’s technology will help it get the goods to the stores more cost efficiently.

The company has also previously worked with Uber Technologies and Instacart Inc. to test delivery options, as well invested millions of dollars in using its abundance of data to predict customer ordering patterns.

The Kroger-Ocado deal and the Amazon-Whole Foods takeover continues a trend for bricks and mortar stores joining forces with tech companies to help bridge the gap between the struggling high street and booming online shopping.

Walmart is also in on the act.

The major US retailer has pursued online-delivery partnerships aggressively. Most recently it took a majority stake in Indian e-commerce company Flipkart and it has partnered with IBM to incorporate blockchain into its supply chain.

This is a trend that is likely set to continue, but still, McMullen maintains there will always be a place for high street stores.

“Physical stores will always be part of that total equation,” he told The Street. But today it’s clear they can never be standalone stores bricks and mortar stores, creating lots of opportunities for tech companies to help bring so-called physical retailers into the digital age.