Ocado partners up with Canada’s Sobeys in second major international deal
Sobeys operates more than 1,500 stores across Canada under brands including Safeway, IGA and and Thrifty Foods.
Online grocer Ocado has confirmed its second major international partnership and its first foray into North America after reaching a deal with Canadian retailer Sobeys.
Ocado said the partnership will involve building an online grocery business in Canada, where Sobeys operates more than 1,500 stores under brands including Safeway, IGA and and Thrifty Foods.
The two firms are planning to build their first warehouse in the Greater Toronto area within the first two years of the partnership, but will consider setting up shop in other cities across Canada.
Ocado said it was “delighted” to be working with one of the leading retailers on the continent.
Luke Jensen, chief executive of Ocado Solutions, said: “Channel shift to online in North America is gaining pace as consumers increasingly seek the benefits of grocery shopping from the comforts of their own homes, and as retailers attempt to offer services to meet this growing customer trend.
“We are pleased to be partnering with innovative and forward-looking retailers such as Sobeys.”
Ocado shares jumped to the top of the FTSE 250 on the news, rising more than 12% or around 49.7p to 462.7p.
It is the second major international partnership to be signed by Ocado in recent months, having announced a partnership with French supermarket giant Groupe Casino late last year.
The FTSE 250 firm announced a separate international deal in early June, but it has so far kept the customer anonymous.
“Soon Sobeys, along with Ocado, Morrisons and Groupe Casino, will be powered by Ocado Smart Platform, sharing a common goal of harnessing the best technology for grocery e-commerce to win in their markets,” Mr Jensen said.
“We look forward to welcoming more major grocers to this list going forward.”
Sobeys will pay Ocado “certain upfront fees” after signing the deal and during the project’s development, with further fees linked to the warehouse capacity and “service criteria”.
Ocado said it expects the deal to add “significant long-term value to the business”, though it will be earnings-neutral for the current financial year.
The initial fees will be offset by the costs linked to establishing the partnership and integrating its software platform with Sobeys’ systems, the UK company said.
Ocado added that it will book around £15 million in capital expenditure for full-year 2018 to support the partnership and “accelerate” the development of the platform, with further investments expected in the future.
However, it said profitability of its Ocado Solutions business is “likely to grow” from full-year 2019 onwards thanks to rising fees from its existing deals, and “as other deals are signed”.
Sobeys president and chief executive Michael Medline said: “Sobeys intends to play to win in Canadian online grocery shopping.
“We are very excited to bring this best-in-the-world grocery e-commerce experience to Canadian customers.”