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, which offers an array of products from industrial chemicals to hotels and confectionery, will work with the British firm to build a set of ‘customer fulfilment centres’ (CFC) 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 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 controlling more than half of the country’s economy 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 35.8 per cent to 641.4p during the mid-morning on Tuesday, making it the top riser on the FTSE 100 Index.
However, the relative absence of lockdown restrictions 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.’
