Ocado Group Shares Soar 33% As It Announces South Korea Tie-Up

Grocery and technology firm Ocado Group surged on Tuesday following news of a partnership with a major South Korean supermarket.

The FTSE 100 business was last trading 33% higher on the day, at 628.4p per share.

Ocado said that it had signed a deal with Lotte Shopping “to develop Lotte’s online business in South Korea with the Ocado Smart Platform.”

Ocado Moves Into South Korea

Under the agreement, Ocado and Lotte — which operates more than 1,000 department stores, hypermarkets and supermarkets in South Korea — will join forces to develop a network of customer fulfilment centres (CFCs) using the Footsie company’s Ocado Smart Platform.

The centres “will cover multiple geographies and cater to a wide range of online grocery missions,” Ocado said, with the first slated to be up and running by 2025. It plans to have another five in operation within a further three years.

On top of this, Ocado’s in-store fulfilment programme will be implemented across Lotte’s store estate. This is scheduled to go live in 2024.

New Technologies

Ocado said that “this partnership will also bring new technologies announced at Ocado Re:Imagined to Lotte’s operations, and it will introduce multi-storey CFCs for the first time.”

This technology allows platforms to be installed across multiple levels, it added, “unlocking a wider range of property types for CFCs and enabling more efficient use of space in densely built environments.”

Under the partnership, Lotte will pay Ocado certain fees upfront as well as during the development phase. Thereafter, fees will be due according to achieved sales and installed capacity within CFCs and service criteria.

Ocado added that “the partnership is exclusive in South Korea on the basis of Lotte ordering an agreed schedule of CFC capacity and in the longer term meeting mutually agreed market share targets.”

“Another Important Foothold”

Commenting on the deal, Tim Steiner, chief executive of Ocado, said that “this partnership brings the Ocado Smart Platform, the most advanced technology for serving online grocery, to one of the most mature ecommerce markets in the world.

“With this new partnership, our unique, proprietary technology will now power the online businesses of twelve major retailers across ten countries worldwide,” he added.

The South Korean e-commerce market is the sixth largest in the world, according to the World Bank.

Luke Jensen, chief executive of the Ocado Solutions division, noted that “Lotte is a powerhouse grocery player in the market, with deep connections to its customers and the ambition to dominate the ecommerce channel in grocery.”

He added that the link up “gives Ocado another important foothold in Asia Pacific as we target further growth across the region.”

What The Analysts Say

Matt Britzman, equity analyst at financial services provider Hargreaves Lansdown, noted that “this is welcome news for a group that’s been struggling to drum up tangible deals for the Solutions businesses.”

He said that the deal is “testament to the product on offer and efficiencies [that Ocado is] able to deliver,” though he noted that it’s unlikely all six CFCs will be up and running by 2028.

Britzman added that “investors will be pleased to hear no additional capital raises are on the cards, with the capex spend having already been modelled into Ocado’s plans.”

Mark Crouch, analyst at social investing network eToro, said that Ocado Group “has long been seen as a British tech name with big potential but one that sometimes struggles to live up to the hype.”

He said that the business failed to capitalise on the shift to online grocery during the pandemic, whilst its lucrative tech division has seen the number of deals to build automated warehouses dry up.

Crouch added that, “news that Ocado has signed a new agreement with Lotte Shopping, one of the biggest conglomerates in South Korea with revenue of more than £45 billion, is [therefore] big news.”

Another deal to “excite investors”

Today’s announcement follows news in September that US retailer KrogerKR
— currently Ocado’s largest partner — plans to merge with market rival AlbertsonsACI
. If the tie-up goes through it could open significant US growth opportunities for the FTSE 100 company.

“These are the type of deals that excite investors,” Crouch noted. However, he added that “Ocado must prove that it is able to make the most of these opportunities if its share price is to get anywhere near its peak again.”

Even after today’s gains, Ocado’s share price remains 65% lower than it was 12 months ago. The retail and technology group is also a long way off its highs around £28.80 per share struck in early 2021.