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Ocado and Kroger agree terms to May deal

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By Reuters
Ocado and Kroger agree terms to May deal
FILE PHOTO: A man walks from the main reception of the Ocado CFC (Customer Fulfilment Centre) in Andover, Britain May 1, 2018. REUTERS/Peter Nicholls   -   Copyright  PETER NICHOLLS(Reuters)

LONDON (Reuters) – British online grocer Ocado <OCDO.L> said on Tuesday it has agreed service and operational terms in relation to the major deal it struck with U.S. supermarket chain Kroger Co <KR.N> in May.

Through the May deal Ocado will ratchet up its delivery business with the construction of robotically operated warehouses for Kroger, upping the ante in the battle with Inc <AMZN.O>.

Ocado said the new agreement includes how Kroger will order warehouses, or what Ocado calls Customer Fulfilment Centres (CFCs), and the basis on which Ocado will develop and operate those sites in the United States.

Kroger is expected to order 20 CFCs over the first three years of the agreement, and order the first three CFCs by the end of 2018.

Ocado did not disclose the location of the first three sites but said details will be made public by Kroger in several weeks.

The target is for Kroger’s CFCs to go live within approximately two years of each order being placed.

Ocado said the terms and fee structure of the Kroger deal are similar to those for its other transactions to-date combining up-front fees and ongoing capacity fees.

As with previous deals, Ocado has agreed to install and maintain modules of Mechanical Handling Equipment (MHE) sufficient to provide an agreed level of throughput.

Ocado expects the earnings impact of the deal to be neutral in full year 2018 and said the expected peak cumulative net capital outflow of the initial three CFCs was 90 million pounds ($116 million). It has over 500 million pounds of financing headroom.

($1 = 0.7822 pounds)

(Reporting by James Davey; editing by Sarah Young)