Headquartered in Hatfield, United Kingdom, few companies have had the highs and lows of the Ocado Group since the company was formed in 2000. You can read about the company here: https://lnkd.in/gr_BcmWa
In the U.S., Ocado is relatively unknown even though Ocado’s largest customer, Kroger, is based in Cincinnati, OH. In 2018, Ocado signed an exclusive agreement with Kroger to build 20 automated Customer Fulfillment Centers (CFC). It’s a great deal for Kroger. However, is it a great deal for Ocado? Stated another way, should Ocado maintain the exclusivity agreement with Kroger, or is there a better opportunity for Ocado to grow their business? I believe there is.
Arguably the most interesting option that Ocado can pursue is ending their exclusivity agreement with Kroger, and acquire Instacart. Instacart claims they’re worth $10B but I believe the company is actually worth between $4B to $6B. Ocado has several options for funding an acquisition of Instacart. Ocado could also contact Instacart and suggest what’s known as a Concentric Merger – companies that serve the same customers within an industry, but they don’t offer the same products or services. Instacart provides nearly 900 retailers with in-store order picking and delivery service. However, the weakness in Instacart’s business model is that everything they do related to fulfillment is manual. If Ocado acquired Instacart, they can approach all of Instacart’s retail partners and offer automated fulfillment and delivery. In addition, Ocado can approach retailers and companies in other industries and offer automated fulfillment and delivery. Ocado has a massive opportunity to grow in the U.S. under the right circumstances.
Could Ocado renegotiate their exclusivity agreement with Kroger so that Ocado can acquire Instacart and offer their fulfillment services to Instacart’s grocery partners? Yes.
Will Ocado end their exclusivity agreement with Kroger? Rivian is in the process of trying to end its exclusivity agreement with Amazon. In business, anything is possible. However, if Kroger’s acquisition of Albertsons is approved, Ocado can look forward to building even more CFCs for Kroger in the USA so I don’t anticipate Ocado ending their agreement with Kroger.
Instacart is an attractive acquisition target for several companies. Target, DoorDash, Uber, Sysco, and Shopify are a few of the companies that should assess an acquisition of Instacart. Target is a great fit for Instacart.
Kroger is in a unique position. They don’t own Ocado but they certainly have control over Ocado in the U.S. Kroger is also a company that thinks big. Kroger is in the process of merging with Albertsons, and they’re proactively evaluating many different technologies. Note: I strongly encourage Kroger to contact Mark Edwards and discuss leveraging software from 345 Global. In fact, every company in the retail industry should follow and contact Mark Edwards.
Kroger has an incredible opportunity to leverage Ocado’s technology to morph from being the largest stand-alone grocery retailer to also becoming the largest wholesaler of groceries in the USA. A combined Kroger Albertsons will have over 5,000 grocery stores. Kroger becoming a wholesaler makes perfect sense. It will also provide Kroger with exceptional opportunities to scale their wholesale business and possibly make additional acquisitions like acquiring Sysco, Dot Foods, UNFI, or SpartanNash. Note: I encourage Sysco to assess acquiring Instacart; it’s an interesting option.
Kroger has endless options they can evaluate in the coming years. Becoming a wholesaler should be at the top of the list. I remain convinced that Kroger may have no choice but to acquire Ocado at some point. The larger Kroger grows, the more important Ocado becomes. Kroger doesn’t have time to waste. Ocado’s low share price makes the company a perfect takeover target. Imagine if Amazon chooses to acquire Ocado. Kroger would put up a legal fight to stop the acquisition but would they succeed? I can name a dozen companies that should acquire Ocado.
I believe it’s important for companies to always Think BIG. In 2018, I spoke with executives at PepsiCo about the need to consider new ideas. Specifically, I recommended to PepsiCo to acquire Kroger. The suggestion stunned the room so much that no one from PepsiCo could speak. Finally, an executive asked, “Could we even do that?” Yes, I replied, you certainly can. The room suddenly became animated as executives began discussing what I suggested. What surprised me was the apprehension in the voices of some of the executives as they pondered PepsiCo doing something they considered to be crazy. I didn’t say anything else for several minutes. I chose to listen and learn.
Had PepsiCo acquired Kroger, it would have revolutionized the grocery industry and the relationship between CPG companies and grocery retailers. PepsiCo would be a completely different company. Should PepsiCo have acquired Kroger? Absolutely.
I’m a fan of Ocado and Kroger, and I wish both companies the best.
