Ocado to Build Robot Warehouses in Japan

(Bloomberg) --

Ocado Group Plc got one of its biggest contracts yet to set up robotic warehouses for online grocery sales with Japanese retailer Aeon Co., expanding the U.K. company’s reach into Asia.

Ocado’s shares surged as much as 15% early Friday in London, the most in a year and a half on an intraday basis.

The British company said it will develop a network of automated warehouses to facilitate home delivery to Japanese consumers, with expected sales capacity of around 1 trillion yen ($9.1 billion) by 2035. That would make the deal comparable in size to Ocado’s earlier agreement with Kroger Co. in the U.S., analysts at Morgan Stanley said in a note.

The deal expands Ocado’s reach into Asia as it focuses on developing its technology operations after Marks & Spencer Group Plc bought a 50% stake in the company’s grocery business. Ocado also has licensing deals with Sobeys Inc. in Canada, Coles Group in Australia, Casino Guichard-Perrachon SA in France and others.

While Japan’s population of 127 million is aging and has begun to decline, the Aeon deal lets Ocado tap the world’s third-largest economy, with a highly developed e-commerce infrastructure.

After relying on readily available manpower for years, Japan’s retailers are starting to embrace technology and automation to alleviate a labor shortage fueled by a shrinking and aging population. Fast Retailing Co., Asia’s largest retailer and operator of Uniqlo clothing outlets, is spending 100 billion yen to automate its warehouses.

Chiba, Japan-based Aeon operates more than 21,000 stores, including supermarkets, convenience stores, clothing chains and general merchandise retailers, across 14 countries. The company has been pushing into Vietnam and other places in Southeast Asia as the domestic market stagnates.

Asian Opportunity

While the Ocado agreement is focused on Japan, the U.K. company said it’s also casting its eye across the region.

“Asia is an area of opportunity,” Chief Financial Officer Duncan Tatton-Brown said on a call. “There will come a day when entering China is sensible, but not yet.”

The U.K. company said the deal will lift operating costs by 25 million pounds ($32 million) in the 2020 financial year.

The latest agreement provides some reassurance to investors after a fire leveled one of Ocado’s warehouses in the U.K. in February. The shares have risen about 70% so far this year.

--With assistance from Reed Stevenson and Paul Jarvis.

To contact the reporters on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net;Eric Pfanner in London at epfanner1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier

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