Ocado heads Down Under with new Coles partnership

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Ocado Coles
// Ocado pens new partnership deal with Australian grocery chain Coles
// Marks the 5th overseas deal for Ocado in less than 18 months
// Deal will see Ocado’s technology and software develop Coles’ online business

Ocado has struck a new partnership agreement with Australian grocery retailer Coles, making it its fifth major overseas deal in less than 18 months.

The new deal will see Ocado’s technology and software being used to develop Coles’ online grocery business in Australia and two robotic distribution centres will be built and go live within four years, one in Sydney and one in Melbourne.

Coles is one of Australia’s biggest retailers, trading from 818 supermarkets, 911 liquor stores, and 712 Coles Express petrol stations across the country and generating sales in full year 2018 of AUD $39.4 billion (£22 billion).

It is already a market leader in online grocery retailing in Australia through Coles Online, with more than AUD $1 billion of annual sales.

Australia also has one of the world’s most concentrated grocery sectors, with big two giants Coles and Woolworths (not the same as the former UK chain) representing around 70 per cent of the Australian grocery market share.

Coles was also majority-owned by Wesfarmers, the same company behind the Bunnings’ failed attempt to crack the UK market, up until late last year.

Meanwhile, while Ocado has a one per cent share of the UK’s grocery market, its £8.7 billion stock market valuation has been driven by the technology side of its business that aim to help grocers compete with the likes of Amazon.

For the past 18 months, it has struck partnerships with the likes of Casino in France, Sobeys in Canada, ICA Group in Sweden and Kroger in the US to provide them with the infrastructure and software to develop their own online grocery businesses.

The aim of Coles’ new partnership with Ocado is to better serve customers in Australia’s larger urban areas by fulfilling orders through the high-tech distribution centres, while customers in less populated areas will benefit from Ocado’s store-pick software.

The deal will see Coles pay Ocado upfront fees upon signing and during the development phase, then ongoing fees linked to both sales achieved and distribution and service criteria.

Moreover, the agreement is exclusive in Australia as long as certain conditions are maintained.

Ocado expected the deal to create significant long-term value to the business, although it wanted that it would be earnings negative in the current financial year as no cash fees will be recognised in revenue until operations start.

The Coles deal also comes a month after Ocado announced a £1.5 billion retail joint venture in its home market with Marks and Spencer.

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