Ocado Partners With Canada's Sobeys as Licensing Gains Pace

(Bloomberg) -- Ocado Group Plc has licensed its grocery-delivery technology to Canada’s Sobeys Inc. as the U.K. online retailer’s five-year efforts to offer its services to supermarkets build momentum.

Sobeys will use Ocado’s technology to create an e-commerce platform and to run an automated warehouse in the Toronto area and a fleet of delivery vans. Sobeys will gain exclusive rights to the system in Canada and will pay an undisclosed fee upfront, the Hatfield, England-based company said in a statement Monday. Its shares rose as much as 13.1 percent in London.

The deal follows a licensing agreement with France’s Casino Guichard Perrachon SA, bolstering prospects for Ocado’s technology. The company had spent at least four years hunting for a large international partner.

“After many years of waiting, Ocado has announced two deals in the space of three months, validating the commercial viability of its offer,” Berenberg analyst Dusan Milosavljevic said by email.

With deals now signed on both sides of the Atlantic, Ocado is taking significant steps toward becoming the global technology licensing company that Chief Executive Officer Tim Steiner envisaged years ago. The Casino agreement helped the U.K. company reach an agreement with Sobeys, Chief Financial Officer Duncan Tatton-Brown said on a call with reporters. The latest deal could raise Ocado’s profile in the lucrative U.S. market, which the company has long targeted.

Ocado expects the Sobeys deal to have little impact on earnings in its current financial year, although capital expenditure will rise by 15 million pounds ($20.8 million). There will be further increases in capital expenditure in later years and Sobeys will pay additional fees linked to capacity utilization in the new fulfillment center.

Complex Endeavor

Ocado’s services are in demand because storing and delivering groceries is more complex than selling books or video games. Food needs to be stored and delivered at the right temperature to ensure it doesn’t spoil. Ocado’s software helps trucks take the best route, so that deliveries arrive at the customer’s door within a one-hour window.

Canada’s online grocery market is still in its infancy. Wal-Mart Stores Inc. sells groceries online in the country, while local competitor Loblaw Cos. offers click-and-collect services and in November announced a partnership with Instacart Inc. to provide home delivery. Amazon.com Inc.’s surprise $13.7 billion acquisition of Whole Foods Market Inc. is expediting the pace at which grocers are developing their online businesses across the world.

“Sobeys intends to play to win in Canadian online grocery shopping” and the deal will offer consumers “the biggest selection, freshest products and most reliable delivery available anywhere on the planet,” Sobeys Chief Executive Officer Michael Medline said in the statement.

Sobeys operates more than 1,500 stores across the country, generating annual sales of C$23.8 billion ($19.1 billion). The chain’s founding family took the company private for $950 million in 2007.

To contact the reporter on this story: Sam Chambers in London at schambers7@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III

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