Small cap stars buoyed by Ocado's surge on USA deal

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Kroger paying $247M to license Ocado online home-delivery technology

Ocado will discontinue discussions with other US-based retailers, in return for Kroger paying exclusivity and consultancy fees on a monthly basis ahead of a more permanent financial agreement in the future. The duo will identify up to a total of 20 over the first three years of the agreement. The online grocery delivery aspect of the business is what is coming to the U.S. Ocado also works in partnership with Morrisons in the UK.

According to a press release issued by Ocado, it is already working with Kroger to identify three sites in the U.S. for new, automated warehouse facilities. "But much of the USA lacks the benign market drivers that make United Kingdom grocery e-Commerce thrive, like dense populations and low vehicle ownership among city-dwellers".

Ocado is known for fast deliveries and, according to CNN Money, Ocado said it will be helping Kroger with warehouse operations, logistics, delivery route planning and automation.

As part of the partnership agreement, Kroger will increase its existing investment in Ocado by 5% in a subscription rights agreement.

Perhaps the string of tie-ups with big global retail players and yesterday's blockbuster response will force Ocado's critics to acknowledge the online grocer's potential.

"We look forward to innovating together with Ocado to provide our customers the best possible online and in store experience", said Alex Tosolini, senior vice president of Kroger business development.

In the longer term, Kroger will retain exclusivity in the U.S. conditional upon its meeting market share targets or ordering an agreed number of fulfilment centers per year.

Kroger shares ended the US Thursday trading session 1.44% higher at $26.30.

Ocado already has a presence in other countries, including partnerships with Sobeys in Canada, Groupe Casino in France and ICA Group in Sweden.

Ocado was also upbeat on the deal and its own abilities. More than 56 million Ocado shares were on loan on Tuesday, the most recent data from industry tracker FIS' Astec Analytics showed.

"This is clearly a transformative deal for Ocado, and one that is on a completely different scale to those announced in the past", said Numis analyst Andrew Wade.

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