Ocado and Kroger agree to the conditions for May

A logo of Kroger will be displayed shortly after the opening bell in New York, USA, on December 5, 2017 on a monitor above the floor of the New York Stock Exchange. REUTERS / Lucas Jackson

LONDON (Reuters) – British online grocer Ocado announced Tuesday that it has reached service and operating agreements regarding the important deal with US supermarket chain Kroger Co in May.

Through the May deal, Ocado will strengthen its delivery business with the construction of robotic warehouses for Kröger and strengthen the fight against Amazon.com Inc.

Ocado said the new agreement includes how Kroger orders warehouses, or what Ocado calls Customer Fulfillment Centers (CFCs), and on what basis Ocado will develop and operate those sites in the United States.

Kroger expects to order 20 CFCs in the first three years of the contract and order the first three CFCs by the end of 2018.

Ocado has not announced the location of the first three sites, but details will be published by Kroger in a few weeks.

The goal is for Kroger's CFCs to go live within about two years of each order.

Ocado said the conditions and fee structure of Kroger's business are similar to those for its other transactions, which so far summarize up-front charges and current capacity fees.

As with previous deals, Ocado has agreed to install and maintain modules of Mechanical Handling Equipment (MHE) sufficient to provide agreed throughput.

Ocado expects the impact of the transaction to be neutral throughout 2018 and said that the expected cumulative net capital outflow of the first three CFCs was $ 90 million ($ 116 million). It has over £ 500 million in financial leeway.

Reporting by James Davey; Arrangement of Sarah Young

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