Ocado has revealed its Canadian partner is closing a warehouse that uses its robots and automation technology in another blow to the UK online delivery group’s business model. Shares in Ocado dived almost 10% on Thursday after it announced that Sobeys would be shutting the Calgary facility, saying it was “largely due to the Alberta grocery e-commerce market’s size and the rate of expansion being slower than originally anticipated”.
The decision came less than three months after Ocado’s US partner Kroger closed three warehouses, knocking almost a fifth off the UK company’s value.
While Ocado is known in the UK as an online grocer, much of its business is built on providing its proprietary software and robotics, known as the Ocado Smart Platform, to other companies to run their delivery operations.
The company’s main route to expansion is via deals to supply its online shopping tech around the world but it faces competition from rival providers while many retailers are focusing on fulfilling orders from stores – a more flexible and often cheaper option.
Sobeys will continue to serve customers of its Voilà online grocery service through two customer fulfilment centres (CFCs) using Ocado tech in the Greater Toronto and Montreal areas. Plans for another site in the Vancouver area remain on hold.
Tim Steiner, the chief executive of Ocado Group, said: “Sobeys is an important partner to Ocado, and we have taken a pragmatic approach to refining the network and placing our partnership on the right footing … Online grocery in North America has continued to develop, and Ocado’s technology has evolved significantly since our first CFCs were launched in the region.
“The changes we have made in our relationships with both Sobeys and Kroger represent a reset of our North American business, placing those partnerships in the best position to secure long-term growth, while reopening a substantial market for Ocado’s much evolved technology.”
Ocado said it expected to receive £18m in compensation during the current financial for the closure of the CFC in Alberta, which was set to reduce its fee revenue by £7m in the year.
The latest setback comes as Ocado continues to report losses despite growing sales. The group reported a 13% increase in revenue to £674m in the six months to 1 June but made a loss of £137m before one-offs including a gain on the valuation of its joint retail venture with Marks & Spencer.
Some analysts have argued that Ocado’s large robot-run customer fulfilment centres do not work economically in developed economies such as the US and Canada, potentially hitting the scope of its expansion.
The model has faced competition from the likes of Deliveroo and Uber Eats, which use small bikes and mopeds to make deliveries direct from stores.
The remaining Sobeys delivery centres plan to adopt Ocado’s new Swift Router system, which is designed to help them serve a higher proportion of same-day and short-lead-time orders.
