The Ocado Group PLC (LON:OCDO) (OCDO.L) share price has risen by 45% today after it announced a partnership agreement with Kroger.
The company’s technology will be used in the US exclusively by Kroger for grocery and other food distribution related activities. The goal of the partnership is to allow Kroger to redefine the grocery customer experience in the US.
It will pay Ocado a monthly exclusivity and consultancy fee which will offset in part the total fees that are expected to be agreed between the two companies. An overall services agreement will be negotiated in order to provide for the drawdown of multiple CFCs across the US.
Additionally, Kroger will subscribe for up to 33.15 million new ordinary shares in Ocado. This is equivalent to 5% of the existing issued share capital, at a value of £183 million.
The two companies are working together to identify the first three sites in 2018 for the development of new, automated warehouse facilities. They intend to identify up to 20 over the first three years of the agreement.
Kroger will retain exclusivity in the US conditional on it meeting market share targets or ordering an agreed number of CFCs per year.
In my view, Ocado has a bright long-term future. Today’s news suggests that it is making progress with its plans to expand its operations across a wider geographic area. The deal seems to be a good one for the company and could add value to the business over the long run.
With consumers across the world continuing to embrace technology, I feel that online grocery shopping will continue to enjoy a tailwind. With the company having the platform and technology to engage with a growing number of retailers over the coming years, I feel that it has further share price growth potential over the long run.