Kroger steps up same-day delivery with new automated fulfillment centers

Dive Brief:

Kroger plans to enter South Florida with two smaller-size automated fulfillment facilities developed alongside technology partner Ocado, the grocer said in a press release on Tuesday.
One of the facilities is a "Zoom" micro-fulfillment site, Luke Jensen, CEO of Ocado Solutions, said in the announcement. The facilities, which will allow Kroger to offer service in as fast as 30 minutes, join an existing CFC in Central Florida and "spoke" sites in Jacksonville and Tampa, Florida.
The grocer is also expanding Kroger Delivery to the Northeast for the first time with a CFC, and in Southern California it plans to build two facilities — one small- and one medium-sized. The announcement marks Kroger's latest move to increase the coverage and speed of its delivery services.

Dive Insight:

While Kroger and Ocado have so far focused on building large warehouses built to primarily serve next-day orders, the two upcoming facilities in Florida mark the companies' expansion into facilities purpose-built for same-day service and rapid fulfillment.

Through the South Florida facilities, Kroger will be able to fulfill orders in as fast as 30 minutes from a selection of 10,000 fresh food items and essentials and also make same- and next-day orders from 35,000 available items.

"These fulfillment centers will also benefit from significant upstream efficiencies, with the existing CFC in Groveland able to act as a major supply hub into the new Florida sites," Jensen said.

Kroger's operations in Central Florida have ramped up faster than expected this year, leading to new expansion plans and resulting in high customer repeat rates and net promoter scores, the grocer said in the announcement.

A Kroger spokesperson confirmed that one of the sites will be a micro-fulfillment location while the other will be a smaller automated facility. She didn't specify the size of each site or how fulfillment capacity will break down between them.

Kroger and Ocado officials have long stressed the flexibility they plan to offer in the size of facilities and types of online services. Ocado's Zoom service in the U.K., which launched in 2019, currently offers 10,000 products to shoppers in several West London markets, according to the company's website. Ocado is also opening "mini" CFCs in the U.K., including a 151,000-square-foot site in Bristol, and plans to open a 135,000-square-foot CFC with Kroger in Romulus, Michigan.

Kroger's latest announcement comes as it and other grocers are rolling out faster delivery services. Last month, Kroger launched a virtual convenience store with Instacart to deliver fresh food, meal solutions, snacks and other products in as little as 30 minutes. The service, called "Kroger Delivery Now," is available to as many as 50 million households through Kroger's more than 2,700 stores.

Like Florida, the Northeast is a relatively under-penetrated market for Kroger, offering another opportunity for the grocer to try and woo shoppers with same- and next-day service through its CFC and Kroger Delivery online service. The region is currently a stronghold for Ahold Delhaize, which operates service through brands like Stop & Shop and Hannaford along with its recently acquired FreshDirect service.

Kroger's Southern California facilities, meanwhile, will fulfill same-day and next-day grocery delivery orders in a region where it currently operates Ralph's and Food 4 Less stores.

Kroger exclusively partnered with Ocado in 2018 to utilize the British e-grocer's automated fulfillment capabilities, and the companies now operate CFCs in Groveland, Florida, and Monroe, Ohio.

Kroger previously revealed plans to open sites with Ocado in Dallas; Phoenix; the Atlanta and Detroit areas; Pleasant Prairie, Wisconsin; Frederick, Maryland; Forest Park, Georgia; and undisclosed sites in the South, West and Pacific Northwest. During its second quarter, the grocer added 340,000 new digital customers, including a significant number of shoppers in Florida, Rodney McMullen, Kroger's chairman and CEO, said during the earnings call in September.

McMullen said in the announcement that Kroger aims to double its digital sales and profitability rate by the end of 2023. "Kroger Delivery is a thriving part of our dynamic ecosystem and is transforming grocery e-commerce and meeting a range of customer needs through the introduction of first-of-its-kind technology in the U.S. developed by Ocado," he said.