Ocado - comment

The proposed acquisition of Alberstons by Kroger is positive news for Ocado, but additional orders will emerge only in the long term and the debt-financed nature of the deal does increase the risk of financial pressure on Kroger. Kroger’s acquisition of Alberston will significantly increase its national footprint and the need to make its online strategy work. This will not translate immediately into additional Customer Fulfilment Centre (CFC) orders. Kroger will be required to dispose of part of the Albertsons shop estate as part of any approval and will revisit its requirements only when there is more clarity on required disposals.

Kroger’s announced intention to acquire Albertsons (phrased as a merger) last week. If approved, Kroger will need to raise c$20bn of debt with PF net leverage of 3.2x (3.0x including $1bn of synergies). Kroger has around 2x the sales of Albertsons. The amount of debt will depend on what disposals or business carve-outs are required.

Ocado has now delivered six customer fulfilment centres to Kroger (the latest is in Detroit). In the US, Kroger is a key partner for Ocado in the rollout of the International Solution business with 17 CFCs on order. The new and larger Kroger will require more distribution assets but these orders will not flow immediately. In the medium-term Kroger may shift the locations of some centres before placing new orders.