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Ocado executive sees benefits of grocery delivery in US suburbs

Warehouses that British online grocery delivery company Ocado Group PLC is building in the U.S. for The Kroger Co. could be well-suited to sprawling U.S. suburbs, Ocado's head of operations in North America said Jan. 13 at the National Retail Federation's 2019 Big Show.

Since supermarket chain Kroger announced in 2018 its partnership with Ocado to build up to 20 order-fulfillment warehouses in the U.S., some industry experts have questioned how well Ocado's approach to delivering groceries would work in the U.S. While Ocado's network of automated warehouses are ideal for a country the size of the U.K., experts said, it is unclear whether the same system would work in the larger U.S. and its vast suburbs.

But in an interview on the sidelines of the Big Show retail industry conference in New York, David Hardiman-Evans, Ocado's senior vice president for North America, said Kroger's warehouses were well-positioned to serve U.S. suburbs. Delivering grocery orders to single-story houses in the suburbs leads to more straightforward delivery routes than transporting orders to customers in high-rise apartment buildings, he said.

"Out in the suburbs, it's heaven," Hardiman-Evans said.

Under the terms of its agreement with Ocado, Kroger will be able to use its warehouses to fulfill orders for delivery by a variety of methods, ranging from direct-to-consumer delivery to buy-online, pickup-in-store operations.

Online grocery sales are expected to account for 8% of all U.S. grocery sales by 2022, according to research released in 2018 by food and grocery consultancy Brick Meets Click. In 2017, shoppers buying groceries online accounted for less than 5% of sales.

A key enabler of that kind of growth will be the emergence of reasonably priced and reliable services, Hardiman-Evans said. Since many U.S. services fill orders by picking items from store shelves, they frequently have to substitute available products for out-of-stock ones ordered by customers.

"It's nothing about geography," Hardiman-Evans said. "It's the level of service."

Kroger's partnership with Ocado still is in the early stages. The Cincinnati-based grocer has announced one warehouse location near its headquarters and will announce locations for two more in the coming weeks, Kroger Chairman and CEO Rodney McMullen said during a Jan. 13 presentation at the National Retail Federation event.