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Retail

Ocado Teams Up With Kroger: What The Analysts Said

By Steve Wynne-Jones
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Ocado Teams Up With Kroger: What The Analysts Said

Online retail specialist Ocado has signed its fourth international deal, with the announcement that it will be supplying its Ocado Smart Platform technology to Kroger in the US.

Ocado CEO Tim Steiner is confident that this deal, and others like it, will "transform the shopping experience of consumers around the world."

Here's how leading retail analysts saw Ocado's latest deal.

Russ Mould, AJ Bell

“Ocado’s fourth overseas technology partnership, with American grocery giant Kroger, is potentially the biggest of them all so far and this means more pain for the short-sellers who continue to question the lofty valuation attributed to the FTSE 250 firm’s shares.

“Ocado’s £5 billion market cap now put it on the fringes of the FTSE 100 – where a valuation of around £5.5 billion is needed for automatic entry into the benchmark index via the quarterly reviews – although management now has to prove it can turn the technology partnerships into profit and cash flow, so the hard work may be just beginning. After all, the company is still expected by analysts to make a pre-tax loss in 2018 and 2019, partly due to the start-up costs associated with the partnership deals."

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David Beadle, Moody’s

“Ocado’s announcement of an exclusive deal in the US with The Kroger Co. is credit positive for the UK based online grocery specialist. The deal’s scale is significant relative to Ocado’s other Smart Platform contracts.

"We note Kroger’s subscription for new shares in Ocado and anticipate the cash flow dynamics of the relationship will support Ocado’s solid liquidity profile.”

Bruno Monteyne, Bernstein Research

"The deal with Kroger does not come as a surprise. In our market scoping work we identified Kroger as the third most likely deal partner (see Ocado: Scoping the global market potential for technology deals.; this note also anticipated the Sobeys and ICA deal). However where we envisaged one CFC to start, this deal is materially larger for up to 20 CFCs.

"The terms of the deal are slightly different, in the way that it will try to minimise the cash lay-out for Ocado, in return for lower fees in the future, but keeping the overall value of the deal the same. [...] In line with previous deals, there is an exclusivity element to this deal: if Kroger sticks to the growth targets they have set (targets not disclosed), then Kroger will have exclusivity to the Ocado technology."

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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