Ocado forges tie-up with major South Korean conglomerate

Ocado shares rose more than a third Tuesday as the online grocer partnered with one of South Korea’s largest companies to expand its online business.

Lotte Group, which offers a range of products from industrial chemicals to hotels and confectionery, will partner with the British company to build a series of customer fulfillment centers (CFC) for its largest retail division.

Under the agreement, the pair plans to build six CFCs in a number of countries by 2028, the first of which will be operational in three years.

From 2024, Ocado’s in-store fulfillment technology will also be rolled out in Lotte Shopping stores, which number more than 1,000 and generate annual sales of £9.5 billion.

Lotte, based in Seoul, is South Korea’s fifth largest ‘chaebol’. These are large industrial conglomerates that control more than half of the country’s economy and have significant influence over the political system.

The new partnership with Ocado makes it the 12th major retailer to become a partner of the grocery company, alongside Morrisons in the UK, US supermarket chain Kroger and Australia’s second largest retailer, Coles.

In recent years, Ocado’s warehouses have become known for their automation technology, where robots take customer orders from a 3D grid of crates before packing them for transportation.

The company said the compensation it will receive from Lotte is “similar to the compensation agreed” with its other global partners. Some cash must be paid up front and during development, after which payments are linked to total revenues and installed capacity.

It will not count cash fees as part of revenue until operations start, while it expects the commitment to have a “negligible” effect on earnings this fiscal year.

Luke Jensen, the chief executive of Ocado Solutions, said: “South Korea is one of the most developed and dynamic e-commerce markets in the world.

‘Lotte is a powerhouse in the supermarket market, with deep connections with its customers and the ambition to dominate the e-commerce channel in the supermarket. We can’t wait to work with Lotte to introduce a groundbreaking proposal to Korean shoppers.”

Ocado Group shares rose 35.8 percent to 641.4p mid-morning Tuesday, marking the highest riser on the FTSE 100 Index.

However, the relative absence of lockdown restrictions has meant that the company’s shares have fallen significantly in value since the middle of last year and by about 60 percent in 2022 alone.

Victoria Scholar, head of investment at Interactive Investor, said the partnership was a “clever opportunistic move by Ocado that will enable the company to gain a foothold in a major growing economy.”

But she warned: “The big question is whether Ocado’s partnerships can turn it into a profitable business that returns money to shareholders.

“At this time last year, the valuation mirrored that of a fast-growing technology company.

“Given the ongoing struggle with profitability, the shift in investor preference away from technology, as well as the cost of living crisis that is putting pressure on consumers, Ocado’s stock price has fallen dramatically.”