Ocado (OCDO.L) shares rocketed more than 35% on Tuesday after it entered the South Korean market through a partnership deal with Lotte Shopping.
The FTSE 100 (^FTSE) firm, which has a joint venture with Morrisons in the UK, signed an exclusive deal to develop the South Korean retailer’s online grocery business.
It will work with Lotte to build a network of robotic warehouses using its smart platform technology, and provide technology for building online grocery orders from Lotte’s stores.
Lotte Shopping is the second largest grocer in South Korea, operating department stores, hypermarkets, supermarkets and e-commerce, with more than 1,000 stores nationwide. It has an annual revenue of 15.6 trillion Korean won (£9.5bn).
Ocado, which has 12 international partners across 10 countries, including Kroger Co in the United States, Aeon in Japan and Casino in France, has planned six Lotte customer fulfilment centres (CFC’s) by 2028. The first is scheduled to go live in 2025.
Meanwhile, its in-store fulfilment (ISF) technology will also be rolled out across Lotte stores from 2024.
Lotte will pay Ocado Solutions certain fees upfront and during the development phase, then ongoing fees linked to both sales and installed capacity within the CFC and service criteria.
“We believe we will sign more deals as our addressable market grows,” Tim Steiner, chief executive, said on a call with reporters on Tuesday.
The news was welcomed by investors who have seen Ocado shares suffer in the post-pandemic era. Ocado benefited during the pandemic as people were stuck at home but once the economy reopened, there was a shift away from home deliveries.
Shares have jumped from 472p to as high as 651p this morning, but they started the year around £16. After a less than rosy outlook in the latest trading update, shares are still down around 60% year-to-date.
“This is a smart opportunistic move from Ocado that will allow the business to gain a foothold in an important growing economy,” Victoria Scholar, head of investment at Interactive Investor, said.
“The tech business will be able to generate fees from Lotte during the development phase and fees linked to sales as well, which will likely be revenue accretive. The tie-up will also help Lotte to expand its delivery business with Ocado’s robotic warehouse technology.
“However investors in Ocado have had a tough time with the stock which is the worst performing company on the FTSE 100 over a one-year period. The share price decline reflects its lack of growth, dividend and profitability which have seen investors shift away from the stock.
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