Why Ocado Is Reframing Its Strategy — And Highlighting Store-Based Automation

Ocado Automation Didn’t Fit the U.S. Market — Announces Store-Based Solution

Ocado's new fulfilment solutions ecosystem

One day after Kroger announced the closure of three Ocado-powered Customer Fulfillment Centers (CFCs) and a US$2.6 billion impairment charge, Ocado released a detailed press statement presenting a “flexible ecosystem” of fulfillment options, including a new store-based automation module.

The timing is clear: Ocado is moving quickly to reposition the narrative.
But the substance of their message — and what remains unsaid — is even more revealing.

Ocado’s American ambitions have suffered a serious setback after Kroger, its main U.S. supermarket partner, retreated from the robotic-warehouse deal that underpinned the British group’s push into the world’s largest grocery market.

Kroger’s decision has triggered one of the most significant conversations in years about the future of online grocery automation in North America. And Ocado’s response unintentionally validates many of the underlying issues retailers — and the industry — have been debating for years.

1. Ocado Is Now Leading With “Flexibility” Because the Original Model Lacked It

Ocado’s new message emphasizes:

“There is no one-size-fits-all… retailers need a mix of solutions.”

This marks a significant shift from the company’s historic positioning.

For nearly two decades, Ocado’s CFC model was built on a very specific set of assumptions tied to the early UK online grocery environment:

Ocado’s original model was designed for weekly pre-scheduled delivery slots.

In the 2000s and early 2010s, UK households often:

• booked the same weekly delivery window

• submitted large, predictable baskets

• ordered on a weekly rhythm

• created long, stable cutoff windows

• produced high route density

• made batching and wave-based picking extremely efficient

This is the predictable demand profile Ocado’s centralized CFC architecture was engineered to optimize.

But that world no longer exists — not in the UK, and certainly not in the U.S.

Today:

• UK consumers increasingly expect next-day or same-day delivery

• click-and-collect has grown

• baskets are smaller and more frequent

• order patterns are more volatile

Ocado’s system still reflects the architectural DNA of its early design assumptions — and this mismatch lies at the center of the Kroger situation.

2. Ocado’s “New” Store-Based Automation Isn’t New — It Echoes Years of Failed MFC Experiments Across the Industry

Ocado’s press release frames store-based automation as a natural extension of CFC automation:

“A compact, automated warehouse within or next to an existing store.”

The description is clean and well-positioned.
But the U.S. market tells a very different story.

From 2018 to 2022, nearly every major U.S. retailer aggressively tested store-based micro-fulfillment automation — and most deployments failed.

Systems from:

• Takeoff Technologies

• Dematic (shuttle MFCs)

• Fabric

• Attabotics

• Alphabot

were shut down or quietly removed because they were:

• operationally messy

• difficult to maintain

• extremely expensive per order

• prone to downtime

• disruptive to store operations

• hard to staff

• dependent on high volumes to justify the capex

• unable to adapt to the volatility of U.S. grocery demand

These systems didn’t stall because retailers lacked interest in automation — they stalled because the ROI never materialized under real operating conditions.

This is the context missing from Ocado’s release.

3. Why Retailers Have Shifted Back to Manual In-Store Fulfillment

Today, nearly all large U.S. retailers — including Walmart, Target, Albertsons, H-E-B, Meijer, and Kroger itself — are doubling down on manual in-store picking supported by strong orchestration software, because it is:

• fast to deploy

• low risk

• low capex

• highly flexible

• easy to scale during peak seasons

• consistent with consumer expectations (same-day and sub-two-hour)

• aligned with dense store networks

This shift has nothing to do with rejecting automation.
It’s a response to the fact that:

The U.S. market rewards flexibility, not mechanical complexity.

Most ASRS-based micro-fulfillment attempts failed not because of the technology itself, but because the economics and operating conditions simply did not support them.

4. Ocado’s Announcement Protects the CFC Narrative — But Avoids the Central Issue

Ocado’s statement stresses:

“Store-based automation is not a replacement for large CFCs, but a complementary solution.”

This is understandable — CFCs are core to Ocado’s identity and long-term contracts.

But Kroger’s decision highlights several realities Ocado’s messaging does not address:

• the CFC model underperformed in multiple U.S. markets

• cost-to-serve increased even as online volume scaled

• CFC economics depend on UK-style density, which the U.S. lacks

• real-world operating costs grew instead of shrinking

• Kroger paused further CFC rollouts before these closures

• digital demand growth never corrected the economics

The silence on these issues is telling.

5. Connecting the Dots: The Real Reason Kroger’s Ocado Model Struggled

The heart of the issue is simple:

Kroger’s online business grew — but its fulfillment costs grew even faster.

This is the opposite of what the Ocado model promised.

Ocado’s architecture assumed:

• stability

• batching

• large baskets

• fixed delivery windows

• high route density

• strong weekly patterns

The U.S. market delivers:

• volatile order timing

• smaller baskets

• same-day and sub-two-hour expectations

• heavy click-and-collect adoption

• low density across large geographies

• unpredictable waves of demand

The result?

The Ocado CFC model was fundamentally mismatched to U.S. grocery behavior.

This was not a failure of robotics.
It was a failure of design assumptions.

Ocado’s press release indirectly acknowledges this reality by repositioning the company as flexible and modular — traits not inherent in the original CFC model.

The Bottom Line

Ocado’s response is polished and well-timed.
But it also reinforces a broader truth:

**There is no universal automation model for grocery fulfillment.

Only the right model for the right market.**

Kroger’s pivot — and Ocado’s reframing — highlight how fast the online grocery environment is changing:

• customer expectations are accelerating

• delivery windows are shrinking

• demand volatility is increasing

• margins remain thin

• retailers require flexibility, not rigid infrastructure

• capital-heavy automation is under increasing scrutiny

The future of grocery fulfillment will be defined not by any single technology, but by how well retailers align automation with the realities of their markets.

Warehouse Automation’s Slant

The Kroger–Ocado story is not about failed technology.
It’s about a misalignment between system design, customer behavior, and market economics.

Our team works with retailers and brands to:

• assess automation fit

• evaluate fulfillment models

• analyze cost-to-serve

• avoid vendor lock-in

• build flexible, scalable architectures

• select technology that matches their real operating environment

If your organization is reassessing its online fulfillment strategy or evaluating automation options, we’d be happy to support the discussion.

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Why Kroger Is Closing Three of Its Ocado Automated Fulfillment Centers?

Kroger announced that it will close three of its Ocado-powered Customer Fulfillment Centers (CFCs) — Pleasant Prairie (WI), Frederick (MD), and Groveland (FL) — as it restructures its e-commerce operations for long-term profitability. The closures come with a $2.6 billion impairment charge in fiscal Q3 and form the core of Kroger’s plan to improve digital profitability by approximately $400 million in 2026.

Despite five consecutive quarters of double-digit e-commerce growth, Kroger stated that its digital business remains unprofitable — a structural issue the retailer has been trying to address since early 2022.

Kroger’s Network Review: Strong Growth, Weak Profitability

Earlier this year, Kroger initiated a “full site-by-site analysis” of its automated network, jointly built with U.K.-based automation provider Ocado. After this review, Kroger determined that three of the CFCs did not meet the performance or demand-density thresholds required to justify their high fixed costs.

The affected facilities represent one of the shortest operational lifespans of any major North American automated grocery projects:

• Groveland, Florida — Opened June 2021

• Pleasant Prairie, Wisconsin — Opened June 2022

• Frederick, Maryland — Opened June 2023

Some of these sites operated for barely 18 months before closure.

Kroger noted that it will continue monitoring the performance of its remaining CFCs and will keep using automated fulfillment in high-density markets where the economics justify it. But the overall message is clear: the centralized CFC model must prove its value.

A Strategic Pivot: From Centralized Automation to Flexible Fulfillment

Alongside the closures, Kroger outlined a significant evolution in its e-commerce strategy:

1. Increased reliance on in-store fulfillment

Kroger plans to expand store-based picking — and will begin piloting capital-light, in-store automation to increase capacity without major capital expenditures.

2. Deeper integration with third-party fulfillment partners

Kroger is strengthening its relationships with:

• Instacart — now its primary delivery fulfillment provider

• DoorDash — offering delivery from nearly 2,700 stores

• Uber — partnership expanding in early 2026

Kroger will also be one of the first retailers to test Instacart’s conversational AI ordering tools within the Kroger mobile app.

3. Selective use of Ocado CFCs

Two previously announced CFCs — in Charlotte and Phoenix — are still planned for fiscal 2026, though neither Kroger nor Ocado offered an updated timeline.

Market Reaction: A Major Blow to Ocado’s U.S. Strategy

Ocado’s stock dropped as much as 18%, hitting its lowest level since 2013. Analysts described Kroger’s move as a severe setback:

“This is pretty devastating for Ocado Group because the USA is the flagship international market for its tech.”

The two companies have been in partnership since 2018, with the original goal of scaling to 20 CFCs across the U.S. That roadmap is now uncertain.

Ocado will receive over $250 million in compensation for the early closures, but it expects a $50 million reduction in fee revenue this year.

A Deeper Angle: Ocado’s Technology Is Brilliant — But Built for a Different Era

The Kroger news is important on its own, but it also exposes a deeper structural issue that has been evident for years:

Ocado’s automation platform is superb from a technical standpoint — but it was originally architected for a very different operating model than what U.S. retailers require today.

Let’s break down why this matters.

1. Ocado Was Designed for Scheduled, Predictable UK Home Delivery

Ocado’s system remains one of the most advanced in the world — high-density grids, swarming robots, complex routing algorithms, and powerful orchestration software.

However, the Ocado Smart Platform was engineered more than a decade ago for the U.K. online grocery model, which is characterized by:

• Pre-booked delivery slots

• Next-day and scheduled delivery

• Predictable daily waves

• High basket sizes

• Repeat weekly order patterns

• Dense, urban delivery routes

This model relies on predictability. Ocado’s architecture thrives on batching, consolidation, and consistency — the core operating patterns of UK online grocery.

This is well documented in early Ocado investor briefings, interviews with Ocado executives, and technology case studies during the Smart Platform’s rollout.

2. The U.S. Market Is Fundamentally Different

Kroger faces a completely different e-commerce environment. Over the past decade, U.S. consumers have shifted toward:

• Same-day and increasingly sub-2-hour delivery expectations

• Massive adoption of click-and-collect/curbside pickup

• Smaller, more frequent baskets

• Unpredictable, continuous order flow throughout the day

• Lower delivery density across vast suburban geographies

This level of volatility and geographic spread is almost the opposite of Ocado’s design assumptions.

3. CFC Economics Break Down When Volume and Density Don’t Match

Ocado’s large CFCs work best when:

• Order volume is extremely high

• Delivery routes are compact

• Orders can be batched and waves optimized

• Customer behavior is predictable

Some Kroger markets simply do not reach the demand density required to amortize the fixed costs of an Ocado CFC. When the model is underfed, the economics break — even if the technology itself performs flawlessly.

This is not a technology problem.
It’s a market-fit problem.

4. U.S. Grocers Are Moving Toward Flexibility, Not Centralization

Across the industry, U.S. retailers are shifting their e-commerce strategies toward:

• In-store fulfillment

• Back-of-store micro-fulfillment

• Capital-light automation pilots

• Third-party delivery platforms

• Hybrid fulfillment models

• Rapid implementation over long-term construction projects

Kroger’s new direction — combining selective CFC use with extensive store-based fulfillment and deep third-party partnerships — is fully aligned with this trend.

Bottom Line

Ocado’s automation technology remains highly sophisticated. That isn’t what’s driving Kroger’s restructuring.

The core issue is structural misalignment between Ocado’s original design assumptions and the fast-paced, unpredictable, same-day fulfillment patterns that define U.S. online grocery.

Kroger isn’t retreating from automation.

Kroger is retreating from a model that was built for another market — one that assumes predictability and density rather than the flexibility and real-time volatility required in American grocery e-commerce.

Warehouse Automation’s Take

As the Kroger–Ocado story shows, the technology itself is rarely the problem. The real challenge is matching the right automation model to the realities of the operation, the market, and the customer experience you’re trying to deliver.

Our team specializes in helping retailers, brands, and logistics operators evaluate these trade-offs — from centralized fulfillment and micro-fulfillment to goods-to-person systems, robotics, and advanced orchestration software.

If your organization is rethinking its automation strategy, exploring alternatives, or assessing the fit of existing systems, we’d be glad to help you chart the right path.