Dive Brief:

• British e-grocer Ocado has announced plans to open an office in the Washington, D.C. metro area for its Ocado Solutions technology business, the company announced in a press release. Ocado will open a temporary office in Tysons, Virginia next month while it searches for a permanent location.
• Ocado has an exclusive partnership with Kroger to build 20 automated distribution centers across the U.S. in the coming years, and will also open one automated center for Sobeys in Canada under a separate deal. Kroger and Ocado recently broke ground on a fulfillment center located in Monroe, Ohio, and last month announced plans to build a location in central Florida and one in the Mid-Atlantic region.
• Ocado Solutions CEO Luke Jensen said that Washington was selected for its connections to cities across the U.S. and Canada, and for its strong technology and engineering talent pools. From the new Washington location, the company will recruit and train "hundreds" of skilled technologists and engineers from North America, he noted.

Dive Insight:

The rollout of Ocado’s automated fulfillment centers — or "sheds," as they're often referred to — is a major undertaking, and the company says it will be in a stronger position to support construction and coordinate delivery of its technology with a U.S. headquarters. 

With an office in Washington, Ocado will be located amid a hotbed of grocery competition — and just a short plan ride away from Kroger’s corporate headquarters. An office in the U.S. will also give Ocado executives a firsthand understanding of the country’s retail landscape, which can provide valuable insight in designing and constructing Ocado fulfillment centers for Kroger. Given the stark differences in density and geography between the U.S. and U.K., an on-the-ground look will help Ocado set realistic expectations for scaling the business alongside Kroger.

While Walmart and Amazon are driving intense competition for grocery e-commerce, Kroger's Ocado deal could be transformative for the under-pressure supermarket chain. The state-of-the-art facilities will be outfitted with robotics and digital capabilities, and if Ocado has a successful pilot with one-hour grocery delivery, Kroger could eventually have a formidable range of same-day and next-day delivery options as well as store pickup.

While home delivery will be a major priority for Kroger as its sheds go up, the grocer also sees other advantages. During a question-and-answer session with investors at last week's Bank of America Merrill Lynch 2019 Consumer & Retail Technology Conference, Kroger chief financial officer Mike Schlotman said that Ocado's sheds could fulfill a significant amount of store pickup orders, which could ultimately reduce costs for the company.

"If you can move that business out of the store and into one of the sheds, it’s picked at a significantly lower cost," Schlotman said. "And as the home delivery business picks up out of that shed, there’s no reason they can’t add some bins of pickup orders and deliver them by the stores as they deliver the product to customers’ houses."