March 26, 2019 / 12:37 AM / 3 months ago

Ocado teams up with Australia's Coles in latest partnership deal

LONDON (Reuters) - British online supermarket pioneer Ocado has signed a partnership agreement with Australia’s Coles, its fifth major overseas deal in less than 18 months as food retailers around the globe respond to online competition.

FILE PHOTO: A man walks from the main reception of the Ocado CFC (Customer Fulfilment Centre) in Andover, Britain May 1, 2018. REUTERS/Peter Nicholls/File Photo

The latest deal, which will see Ocado’s technology and software develop the Coles Online grocery business in Australia, sent Ocado’s shares up as much as 6 percent in London on Tuesday to a record high. The stock has risen 147 percent over the last year. Coles shares closed up 2.2 percent.

The Coles deal will see two robotic distribution centers – or customer fulfillment centers (CFCs) as Ocado calls them - built and go live within four years, one in Sydney and one in Melbourne.

The Coles deal is Ocado’s first since a fire destroyed its flagship warehouse in Andover, southern England, last month.

“It’s not unhelpful to announce a deal after that fire because it gives you evidence of what we always knew that there was no consequences of the Andover fire,” Chief Financial Officer Duncan Tatton-Brown told reporters.

Though Ocado has only a 1 percent share of Britain’s grocery market, its 9 billion pound ($11.9 billion) stock market valuation has been driven by the technology side of its business - providing international retailers with the infrastructure and software to develop their own online grocery businesses to compete with the likes of Amazon.

After struggling for years to post a profit Ocado has flourished since late 2017, signing big deals with U.S group Kroger Co, Casino in France, Sobeys in Canada, and ICA Group in Sweden.

The Coles deal came a month after Ocado announced a 1.5 billion pound retail joint venture in its home market with Marks and Spencer.

“Ocado’s best-in-class proposition, built upon years of developed know-how and technological expertise, positions it well for further outperformance in the UK and monetization overseas,” said RBC Europe analyst Sherri Malek.

ONLINE GROCERY LEADER

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 full year 2018 of A$39.4 billion (22 billion pounds).

It is already a market leader in online grocery retailing in Australia through Coles Online, with more than A$1 billion of annual sales.

Coles Online’s plan is to serve customers in Australia’s larger urban areas by fulfilling orders through Ocado’s CFCs, with customers in less populated areas benefiting from Ocado’s store-pick software.

Coles said its capital expenditure, inclusive of upfront fees to Ocado, was expected to be A$130 to A$150 million over the four year development and construction period.

Tatton-Brown said the deal mirrored previous partnerships -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.

Reporting by James Davey; Editing by Leslie Adler/Keith Weir

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