Ocado’s recent announcement that US grocery giant Kroger will pay $350 million (£276 million) to close three customer fulfilment centres (CFCs) and cancel one planned site raised eyebrows in the retail sector. At first, this move looks like a setback for Ocado. However, investment bank Peel Hunt, which offers valuable insight into major retailers, remains optimistic about Ocado’s future, maintaining its Buy rating and 315p target price. This points to a more complex story: Ocado is adjusting its strategy, not pulling back.
Cash flow commitment
Peel Hunt highlights that Ocado still expects to become cash flow positive in fiscal year 2026, not counting the Kroger payment. For a company often criticised for high spending and negative cash flow, this is an important message for investors. It shows Ocado is shifting from focusing only on growth to aiming for more disciplined execution and profitability.
In recent years, Ocado’s success has rested not on its grocery business but on its robotic automation technology, which powers many CFCs across the UK, including those used by Morrisons. In 2018, Ocado and Kroger agreed a deal for Ocado to build 20 CFCs across the US. Eight have opened so far, of which three will now close, with one of the two planned for next year also cancelled.
However, Ocado’s CFC architecture, designed nearly two decades ago, was based on pre-booked weekly delivery slots and predictable shopping baskets. The world is moving on. Customers now expect same-day or next-day delivery, and their baskets are smaller and less predictable. To accommodate this, most major US grocers, including Walmart and Kroger, have moved away from CFCs and back to manual in-store picking, supported by strong orchestration software.
Ocado has been quick to adapt to this changing landscape by offering in-store fulfilment software. In a statement on its corporate website that emphasises that “there is no one-size-fits-all when it comes to how online grocery orders are fulfilled”, it states that: “our new store-based automation solution involves automated picking and fulfilment within a customer-facing store. It’s a compact, store-based solution that supports efficient pick-up and local delivery missions, with access to the entire store range.”
Kroger relationship: still intact
Even with the closures, Kroger is not ending its partnership with Ocado, which signals ongoing faith in Ocado’s technology. One new CFC is still planned, and Kroger has requested more capacity at its Detroit site for 2026. The $350 million payment also improves Ocado’s finances, giving it more flexibility to invest in new solutions.
Ocado’s half-year results, reported in July, show that the technology solutions arm is the company’s growth engine. While a one-off accounting gain of £611.8 million boosted reported profit, the core business still saw a cash outflow of £108 million. Technology Solutions revenue grew 14.9% to £277.3m, with EBITDA up 109% to £72.8m. Ocado Retail – its joint venture with M&S – delivered £1.53bn in revenue, up 16.3% year-on-year, with adjusted EBITDA of £33.3m, though margins remain thin.
Ocado CEO Tim Steiner reaffirmed that the group was on track to become cash-flow positive during FY26. Peel Hunt’s stance suggests this target is credible and that the Kroger deal is about smarter choices, not shrinking ambitions.
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