Ocado Group PLC (LON:OCDO) We are pleased to announce the signing of an agreement between Ocado Group plc and Coles Group Ltd to partner with Ocado Solutions to develop Coles Online’s grocery business in Australia using the Ocado Smart Platform (“OSP”).
Coles is one of Australia’s largest retailers, trading from 818 supermarkets, 911 liquor stores, and 712 Coles Express petrol stations across the country and generating sales in FY2018 of A$39.4bn (£22bn).
Coles is already a market leader in online grocery retailing in Australia through Coles Online, with more than A$1bn of sales on an annualised basis.
Adoption of OSP will enable Coles Online to serve customers in Australia’s larger urban areas by fulfilling orders through Ocado’s unique robotic Customer Fulfilment Centres (“CFCs”) with customers in less populated areas benefiting from Ocado’s proprietary store-pick software.
Coles and Ocado have agreed to operate two CFCs, one in Sydney and one in Melbourne. These facilities are expected to go live within four years. Coles Online will also transition its store-pick based operations to the Ocado Smart Platform and this is expected to take place in parallel with the CFCs going live.
As is now standard in OSP partnerships, Ocado will provide a comprehensive and customized suite of support and engineering services to enable a smooth launch and sustainable ecommerce operations. Coles and Ocado will also partner to incorporate ongoing learning and innovation from Ocado’s global experience into the Australian marketplace. In consideration of the investments made by Ocado, including maintenance and access to technology, Coles will pay Ocado certain upfront fees upon signing and during the development phase, then ongoing fees linked to both sales achieved and installed capacity within the CFC and service criteria.
The agreement is exclusive in Australia as long as certain conditions continue to be maintained.
Steven Cain, CEO of Coles Group Ltd, said:
“Ocado is singularly focused on online grocery shopping and, as a result, has become the best in the world. We are delighted to be partnering with them to make life easier for Coles’ customers here in Australia. Ocado’s ongoing investment and retail partnerships around the world will help us continue to improve our offer into the future”.
Tim Steiner, CEO of Ocado, said:
“Today marks another big moment in the continuing transformation of Ocado. Our unique, proprietary and industry-leading technology is bringing new growth opportunities to retailers around the world and changing the customer experience of grocery shopping. Coles is a grocer with a global reputation for innovation and outstanding commitment to their customers, and I am delighted we will be working together in the years to come to reshape the food retail landscape in Australia.”
Luke Jensen, CEO of Ocado Solutions, said:
“We are delighted to partner with Coles. Already a leading player in online grocery retailing in Australia, we are proud that they have chosen the Ocado Smart Platform to take them to the next level. Our flexible, scalable and modular solution will help them bring new levels of convenience, choice and value to Australian consumers. The Australian market is changing as consumer needs evolve and our platform will enable Coles to lead this transformation in a profitable and sustainable way”.
Expected financial impact for Ocado
Ocado expects this deal to create significant long term value to the business. The impact of this transaction should be earnings negative in the current financial year as no cash fees will be recognised in revenue until operations commence. Ocado expects minimal additional capex in FY19 with the majority of additional capex in the 18 months prior to the opening of the CFCs.