Kroger (KR), the warehouse expert and online grocery store from Britain, partners with Ocado and is opening a 375,000 sq. ft. entirely automated middle exterior this spring. This $55 million worth in Cincinnati is the first of the ten stores planned by the company.
Kroger is in plans to complete all the distribution centers in the US within two years. This happens to be a move from the company to sell more online groceries. However, the strategy banked by the company is receiving criticism on Wall Street.
A statement from the company last month read that Kroger is in plans to double its digital sales up to more than $20 million by 2023 for both curbside pickups and home deliveries. The company is all set to compete against Walmart, Amazon, etc., to grab a bigger share of the online market.
As per the latest data from Nielsen, the online sales of beverages and food shove 83 percent by the year-end compared to the same data from the previous year. The value stands at nearly $39 billion as of January 31. The pandemic restrictions boosted online sales as people couldn’t visit the stores frequently.
Giant grocers are now focusing on two aspects to grab a larger share in the market. One, opening a huge standalone warehouse as Kroger did. These can meet customers’ orders from different markets and deliver thousands of orders each day.
Two, opening micro-fulfillment centers or mini-warehouses within the stores to serve online orders. Albertsons, Walmart, H-E-B, and others follow this way. However, Kroger’s warehouses can deliver more orders than these mini-warehouses. This is a huge advantage, especially when online demands are booming.
Kelly Bania, an analyst from BMO Capital Market feels that in-store warehouses can better serve same-day delivery demands, as larger fulfillment centers are far away from customers’ places. She says, “This is primarily a next-day service. The US has really evolved into such a same-day market.”
Her statement further says that this move from Kroger can hurt the company’s returns and harm its revenue as large warehouses require so much cost to build.
The company also partnered with Instacart to enable same-day delivery orders. Kroger’s CEO Rodney McCullum said that the company is hoping for profits from this plan. Tim Steiner, CEO of Ocado said on Wednesday that these warehouses are also capable of same-day deliveries.