Kroger Reconsiders Ocado: Betting on Stores for Faster Fulfillment

The grocery chain is conducting a “full site-by-site analysis” and leaning on its stores to fill orders as it looks to improve profitability and reduce costs.

Kroger is reviewing its automated e-commerce fulfillment network

Kroger Rebalances Its Automation Strategy: From Ocado CFCs to Store-Level Fulfillment

Kroger is reevaluating its multibillion-dollar automated e-commerce strategy as it looks to balance profitability with customer demand for speed and convenience.

During the company’s second-quarter earnings call, interim CEO Ron Sargent announced a “full site-by-site analysis” of Kroger’s Ocado-powered automated fulfillment centers (CFCs) and spoke openly about shifting emphasis back to store-level fulfillment.

“Stores are our most important asset, and when we use our stores to fulfill online orders, the inventory is closer to customers and the last-mile delivery costs are lower,” Sargent said.

Key Shifts in Strategy

• E-commerce growth: Q1 e-commerce sales rose 16%, with delivery orders surpassing pickup for the first time.

• Automation scrutiny: Kroger has invested heavily in Ocado robotic warehouses, but performance varies. Facilities in dense, high-adoption areas outperform those in slower markets, prompting leadership to “take a hard look” at underperforming sites.

• Capital discipline: While two new Ocado centers are still slated for Charlotte and Phoenix in 2026, Sargent emphasized leveraging stores to expand rapid delivery without heavy capital spend.

• Physical retail investment: Kroger is simultaneously accelerating new store builds and remodels, targeting 30 major projects in 2025 and a 30% increase in new store openings the following year.

The Ocado fulfillment model was originally designed for the UK grocery market over 25 years ago, with its first large-scale robotic CFC going live in Erith in 2017. That model was optimized around customers booking weekly delivery slots, where automation and software could run efficiently against predictable demand patterns.

But the digital grocery space has changed dramatically. Today, many U.S. consumers expect grocery and food items delivered in hours — or even minutes. In this environment, Ocado’s large CFC network has struggled to keep pace. By contrast, Amazon, Walmart, and Target are actively redesigning their national e-commerce networks to support same-day delivery on a broadening set of products.

Ocado Logistics’s automation technology is superb and has set benchmarks in robotic storage and picking. However, its cube-based storage concept, developed over two decades ago, was never designed for the speed and flexibility demanded by today’s rapid-delivery grocery models.

Industry Context: A Wider Rethink

Kroger isn’t alone. Across retail, companies are revisiting their online fulfillment strategies — moving away from centralized high-capex networks and strategically leveraging store locations to bring inventory closer to consumers. Walmart has been leading the way, using its store footprint to support rapid delivery in peak time windows and expand its same-day service. For many grocers, this hybrid approach blends in-store micro-fulfillment, dark stores, and centralized hubs into a more flexible digital logistics ecosystem.

Financial Context

• Quarterly sales: $33.9 billion, flat year-over-year, but +3.8% excluding divested pharmacy operations.

• Same-store sales (ex-fuel): Up 3.4%, marking six consecutive quarters of improvement.

Kroger’s pivot underscores a core challenge for automation in grocery: balancing high-capex robotic fulfillment networks with flexible, store-based models that reduce last-mile costs. For automation vendors and robotics suppliers, this signals:

• Increased scrutiny on ROI of large-scale fulfillment automation.

• Rising demand for smaller-scale, modular, store-integrated automation.

• A push for software-driven orchestration between in-store picking, micro-fulfillment, and centralized robotic hubs.

The coming quarters will be pivotal in showing whether Kroger’s recalibration represents a permanent rebalancing away from large Ocado CFCs — or simply a temporary cost-focused adjustment.