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Ocado to Cut 5% of Staff as Warehouse Tech Rollout Falters
British Online Grocery Delivery Company Grapples With Kroger Pullback
Ocado Group Plc will cut about 1,000 jobs, or 5% of its global workforce, as the British online grocery delivery company grapples with the pullback by its biggest customer.
The layoffs will be mostly research and development roles in the U.K., and Ocado said Feb. 26 it will move into a less capital-intensive R&D phase and also reduce the capital expenditure required by customers to deploy its products.
Shares of Ocado slumped as much as 12% in London, the most on an intraday basis since November.
The latest update is a marked change in tone from Ocado, which was founded by three former Goldman Sachs bankers and has pitched itself as the “Tesla of grocery.” But its shares have tumbled more than 90% from their pandemic peak, as the shift in COVID-era shopping habits proved temporary and Ocado struggled to convince investors about the viability of its robot technology.
It suffered a major setback in November when its biggest customer, U.S. grocer Kroger Co., said its automated warehouse network was falling short of financial expectations and that it would close three Ocado fulfilment centers. In January, Canadian partner Sobeys Inc. said it willcloseone of its warehouses in Calgary.
READ MORE:Ocado Gets $350 Million From Kroger for Warehouse Closures
Ocado is battling a growing trend among grocers to handle more online orders in-store rather than at fulfilment centers. British supermarket Morrisons said in 2024 it would reduce its use of Ocado’s U.K. warehouses, in favor of completing orders in its stores, where it uses Ocado’s in-store software.
“We can continue to innovate with features and functionality but without as many people,” CEO Tim Steiner told Bloomberg, citing the end of two major technology projects and more use of artificial intelligence.
Ocado said in December it had ended exclusivity arrangements in the U.S. and other markets. The company will focus more on in-store automation in the U.S., Steiner said, before looking at large fulfilment centers.
The company’s other deals with grocers include Aeon of Japan, France’s Casino and Coles in Australia. In the U.K., it is best known for Ocado Retail, its online grocery venture with Marks & Spencer Group Plc.
Ocado group revenue rose to 1.36 billion pounds ($1.8 billion) in the full-year ended Nov. 30, ahead of analyst estimates. The company said it expects to turn cash-flow positive in the second half of its fiscal year.
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But its revenue outlook for the technology division, which develops the automation systems, was weaker than analysts expected.
The retailer’s plan to roll out six new automated warehouses over the next two to three years will be a challenge given recent issues with Kroger and Sobeys, Bernstein analysts led by William Woods said in a note.
“Ocado faces the challenge of cutting costs to get to free cash-flow breakeven with limited underlying business momentum,” he said.
Kroger ranks No. 31 on theTransport Topics Top 100 list of the largest private carriersin North America, and No. 3 on theTT grocery list.
