The Board and management of the Kroger Co. have reviewed the considerable capital investment made by the previous CEO Rodney McMullen in Ocado mechanized installations functioning as centers for a hub-and-spoke delivery model. The original plan involving equity in the UK provider of automated warehousing involved numerous fixed installations with hub facilities to deliver groceries directly to homes. Given the considerable investment and possibly technical problems encountered with the initial installations have prompted a re-evaluation of policy following the departure of the previous CEO.  Kroger will close three Ocado fulfillment facilities taking a $2.6 billion charge during the third quarter of FY 2025.

The company has now announced a hybrid approach incorporating store-based fulfillment with third-party delivery services but with retention of viable automated fulfillment centers.  Kroger is now working closely with Instacart and DoorDash with the prospect of an affiliation with Uber Eats to combine grocery and meal deliveries.

In retrospect, the McMullen initiative was over-ambitious and incurred high up-front capital costs.  Since the concept was conceived and implemented during the COVID period, there have been profound changes in the grocery market, with a return by consumers to brick-and-mortar locations, the rise in club stores and the growth of alternative delivery systems through increased efficiency and consolidation. These factors reduced the relative ROI from the Ocado fulfillment centers.  The apparent failure of the hub-and-spoke distribution is exemplified by an early initiative by Kroger to enter the Florida grocery area without supermarkets in an attempt to compete with established grocery retailers including Publix.  On face value this approach was highly speculative with reality becoming apparent over the past two years.