Ocado’s share price fell sharply on Friday after US grocery partner Kroger signalled a strategic rethink of its warehouse investments, triggering concerns over the British online grocer’s growth prospects in the world’s largest retail market.
The stock dropped more than 11% in London trading, extending a recent slide that has wiped nearly a quarter of its market value in the past month.
The latest decline came after Kroger’s interim chief executive Ron Sargent suggested the company may rely more heavily on existing stores rather than building new automated sites.
“The bulk of our e-commerce is done by stores today,” Sargent told analysts on the US supermarket group’s second-quarter earnings call.
Kroger’s cautious stance raises questions for Ocado but JPMorgan stays bullish
Ocado struck its landmark deal with Kroger in 2018, providing robotic warehouses, known as Customer Fulfilment Centres (CFCs), to support the American grocer’s online delivery expansion.
The partnership has been central to Ocado’s international growth ambitions.
However, Kroger’s comments raised doubts about the pace of new investments.
Barclays analysts described the tone on CFC investment as “cautious,” noting an increased emphasis on using the store footprint.
JPMorgan said Kroger will conduct a “site-by-site review” of existing and planned CFCs, with the results expected later this quarter.
Neil Wilson, a UK-based market strategist, called the development “a clear negative for Ocado,” as it suggests Kroger may pivot more towards in-store fulfillment.
Still, JPMorgan argued that Ocado remains attractive given the global shift towards online grocery.
With Kroger’s exclusivity arrangement waived, the broker sees scope for Ocado to strike deals with other US retailers as well as operators in Asia and the Middle East.
JPMorgan maintains an “overweight” rating, while Barclays remains “underweight.”
Losses overshadow revenue growth pulling shares down
The pressure on Ocado’s stock has persisted despite steady revenue growth.
Last year, revenue climbed to £3.16 billion, up from £2.8 billion a year earlier.
Technology solutions revenue rose 15% to £277 million, while logistics revenue advanced 12% to £397 million.
Ocado Retail, its joint venture with Marks & Spencer, also posted a 16% rise in sales to £1.6 billion in the first half.
Gross profit increased 15% to £509 million, with average orders per week climbing 14% to 491,000 and the average basket value rising to £124.
Despite this, losses remain a drag.
The company reported a pre-tax loss of £375 million last year, only a marginal improvement from £394 million the year before.
Ocado has, however, managed to narrow its underlying cash outflow, reducing it to £108 million in the first half from £201 million a year earlier.
The group reaffirmed guidance and said it expects to turn cash flow positive next year.
Analysts see downside risk but technical upside
Technical analysts warn that Ocado’s share price remains in a downward trend.
According to Invezz’s financial analyst Crispus Nyaga, the stock has stayed below the 100-week Exponential Moving Average, with repeated attempts to rebound failing.
The Relative Strength Index is also close to slipping below the neutral 50 mark.
However, Nyaga pointed out that the stock has formed a falling wedge pattern on the weekly chart, often considered a bullish setup.
He predicts the share price could fall another 25% to 250p before rebounding later next year.
Alternatively, a break above resistance at 395p could signal a renewed uptrend.
For now, Kroger’s review looms large over Ocado, with investors awaiting clarity on whether the U.S. grocer will scale back its warehouse strategy — a decision that could reshape Ocado’s international ambitions.
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