Asda has agreed a deal with Ocado for the grocery technology company to take over all home deliveries from Britain's third largest supermarket from next year, in a move aimed at reversing recent sales weakness.
Deal Details
Ocado will take over Asda's delivery operations and will work from stores and 'dark stores' – warehouses – from early 2027, the companies said in an announcement on Friday. Shoppers will be able to buy Asda products from Ocado's web shop as well as making click-and-collect orders. Asda will also use Ocado's platform to deliver orders placed through other apps such as Uber Eats, Deliveroo, and Just Eat.
Market Context
Asda will be hoping to arrest recent sales weakness under its private equity owners, TDR Capital and Mohsin Issa, and fight back against the German discount chains Aldi and Lidl. Asda's UK grocery market share has dropped from 14.3% before their 2021 takeover to 11.5%, according to Kantar data – leaving it just above Aldi on 10.8%.
The deal is also likely to be welcomed by shareholders in Ocado, which has suffered several missteps in its efforts to push its hi-tech vision of grocery delivery. Ocado uses large warehouses filled with robots to fill shopping baskets for delivery. In the UK, Ocado runs the online supermarket Ocado.com as a joint venture with Marks & Spencer. It previously did deliveries for Waitrose.
Ocado's Financial Performance
Ocado has rarely made a profit since it was founded 26 years ago. During the coronavirus pandemic lockdowns, a wave of online shopping pushed its stock market value to more than £22bn. Its share price has collapsed from more than £27 to £2.08 before the Asda deal was announced. Its shares rose 9% on Friday morning after the deal was announced, making it the top riser on the FTSE 250.
Previous Partnerships
Other partnerships have proven problematic. In the US, the Kroger supermarket chain last November announced it was closing three warehouses using Ocado's equipment. Two months later, Ocado revealed that Sobeys in Canada was closing its Calgary facility.
Executive Comments
Allan Leighton, Asda's executive chair, said: 'We know that continued success in this highly competitive market is dependent on providing a positive experience for customers every time they shop. Partnering with Ocado will strengthen our online offer and provide a consistent and high-quality experience for millions of shoppers, from order through to delivery, while supporting our formula for growth.'
Tim Steiner, Ocado's chief executive, said: 'We're delighted that Asda has chosen Ocado to support the next phase of their online growth. The UK remains one of the world's most competitive and fast-evolving online grocery markets, where technology, scale and continuous innovation are increasingly important for retailers looking to maintain leadership positions.'
