Kroger heads to Texas for 5th Ocado location

Dive Brief:

Kroger's next Ocado warehouse will be built on 55 acres in Dallas, according to the Dallas Morning News.
The Dallas city council approved $5.7 million in incentives, including property and business tax abatements worth $3.7 million and $2 million in bond money to develop in the southern Dallas region.
Construction on the customer fulfillment center will take 24 months to complete, the Dallas Morning News reported. This will be Kroger's fifth announced Ocado location.

Dive Insight:

Kroger's footprint in Dallas — and Texas in general — is relatively limited. In fact, according to data company Scraphero, the grocer has the lowest percentage of stores in highly populated states like Texas compared to its competitors. While it's not clear what the grocer's strategy is in choosing locations for its Ocado facilities, a fulfillment center in Dallas could signal that the grocer hopes to gain momentum in the state.

It could be difficult for Kroger to gain traction in Texas considering competitors Walmart, Costco and Target already have a strong foothold on the state with a higher percentage of stores. The Lone Star State's beloved H-E-B also dominates the grocery landscape with more than 300 stores.

With plenty of land available for what is likely to be a massive automated warehouse, however, Dallas seems like a prime location for one of Kroger's Ocado fulfillment centers. The grocer has yet to announce the size for the Dallas location, but for comparison, its Monroe, Ohio Ocado facility is slated to be 335,000 square feet.

Kroger's AI-powered, automated fulfillment centers in partnership with Ocado are intended to help the retailer handle a large number of online grocery orders and prevent pressure on in-store inventories. But as of now, the adoption rate for e-commerce in food retail is still relatively low. Only about 3% of grocery sales come from online orders, but Kroger is preparing for its future as its last quarterly earnings report showed digital sales were up 42%. The retailer has rolled out same-day delivery and is testing a Rush delivery that gets customers meals and certain products in under 30 minutes.

Now that Kroger has announced five Ocado facilities in Midwest and southern U.S., it will be interesting to see if its next location is announced further west and which areas it will target. Its locations in Monroe, Ohio, Forest Park, Georgia and the Mid-Atlantic will serve large store bases, while other locations in Florida, and now Texas, seem to suggest that Kroger plans to ramp up presence in new places.