Ocado forges tie-up with major South Korean conglomerate

Ocado shares surge by 39% as online grocer agrees tie-up with South Korea’s Lotte Group to provide technology and build warehouses

  • Lotte Group’s interests span sectors ranging from industrial chemicals to hotels
  • Under the deal, the pair plan to build six CFCs covering many countries by 2028
  • Ocado’s warehouses have become renowned for their automation technology 

Ocado shares soared by more than a third on Tuesday as the online grocer agreed a partnership with one of South Korea’s biggest firms to expand its online business.

Lotte Group, whose interests span sectors ranging from industrial chemicals to hotels and confectionery, will work with the British grocery giant to build a set of ‘customer fulfilment centres’ serving its biggest retail division. 

Under the agreement, the pair plan to build six CFCs across a number of countries by 2028, with the first becoming operational in three years’ time.

Tie-up: Seoul-based Lotte Group has struck a new partnership with Ocado to expand its online business, including building a new network of ‘customer fulfilment centres’

From 2024, Ocado’s in-store fulfilment technology will also be rolled out across Lotte Shopping stores, which number more than 1,000 and produce an annual turnover of £9.5billion. 

Based in Seoul, Lotte is South Korea’s fifth-largest ‘chaebol,’ which are major industrial conglomerates that control most of the country’s economy, are often family-run and have significant influence over its political system. 

Its new tie-up with Ocado makes it the 12th major retailer to become a partner of the grocery firm, alongside the likes of Morrisons in the UK, American supermarket operator Kroger and Australia’s second-largest retailer Coles. 

In recent years, Ocado’s warehouses have become renowned for their automation technology, with robots picking out customer orders from a 3D grid of crates before being bagged for transport.

The firm said the fees they will receive from Lotte would be ‘similar to those agreed’ with its other global partners. Some cash with be paid upfront and during development, then payments will be linked to overall revenues and installed capacity.

It will not count cash fees as part of revenues until operations are up and running, while it expects the tie-up to have a ‘negligible’ effect on earnings this financial year.

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

‘Lotte is a powerhouse grocery player in the market, with deep connections to its customers and the ambition to dominate the e-commerce channel in grocery. We can’t wait to introduce a game-changing proposition to Korean shoppers with Lotte.’ 

Ocado Group shares skyrocketed by 38.6 per cent to 654.6p on Tuesday, making it the top riser by some distance on the FTSE 100 Index.

However, the relative absence of  restrictions and rising concerns about cost-of-living pressures has caused the company’s shares to decline significantly in value since the middle of last year and around 60 per cent in 2022 alone.

Victoria Scholar, the head of investment at Interactive Investor, said the tie-up was a ‘smart opportunistic move from Ocado that will allow the business to gain a foothold in an important growing economy.’

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

‘This time last year, its valuation reflected that of a high-growth tech business. 

‘However, given its ongoing struggles with profitability, the shift in preference among investors away from technology, as well as the cost-of-living crisis that is squeezing consumers, Ocado’s share price has fallen drastically.’