Kroger announced this month that it will close three robotic e-commerce fulfillment centers, a decision that marks a major shift in the American supermarket chain's automation strategy. Previously, Kroger had repeatedly expressed confidence in using automation to make its online grocery business profitable.

Less than a year ago, Kroger said it planned to expand its network of high-tech fulfillment centers developed with British warehouse automation company Ocado. In mid-2024, Kroger also revealed it would introduce new Ocado technology to improve warehouse efficiency.

When Kroger launched its partnership with Ocado, then-CEO Rodney McMullen said in a video that the company believed in "leading the market with relentless innovation to delight customers and solidify its position as a leading e-commerce company in the U.S." The video was released when Ocado announced equipment improvements last year.

However, behind Kroger's confidence, doubts about the performance of the Ocado network had already emerged. In September 2023, Kroger disclosed that it had decided to pause expansion of the Ocado project to see whether existing sites could meet performance benchmarks.

In March 2024, Kroger announced the closure of three "spoke" facilities associated with its robotic centers, with a spokesperson saying these facilities "did not meet the success benchmarks we set." This sign further indicated that its strategy was wavering.

By September 2025, Kroger had clearly realized that making automation the foundation of a profitable fresh delivery business might be difficult to achieve. During an earnings call, interim CEO Ron Sargent said the company would conduct a "comprehensive site-by-site analysis" of the Ocado network. Sargent took over in March after McMullen suddenly resigned amid an ethics investigation.

Sargent also said Kroger would shift its e-commerce focus to its more than 2,700 supermarket stores, as the company believes stores can "reach new customer segments and expand rapid delivery capabilities without significant capital investment."

Kroger announced on November 18 that closing the three robotic facilities and other e-commerce operational adjustments are expected to bring the company a $400 million improvement in profitability to boost e-commerce earnings. But the adjustment comes at a high cost, with Kroger expected to incur approximately $2.6 billion in related charges.

Ken Fenyo, a former Kroger executive and current managing partner at Pine Street Advisors, said Kroger's adjustment reflects industry reality: fresh e-commerce has not reached the levels the industry predicted when the COVID-19 pandemic drove a surge in online sales five years ago. Fenyo also noted that Kroger's decision to locate Ocado centers outside city limits was a key misstep.

"Ultimately, these locations made it hard to make the model work," Fenyo said. "Not enough people were ordering, and delivery distances were long. So these large centers ultimately couldn't process enough orders to cover all the technology investment."

Through its automated fulfillment network, Kroger had bet that consumers would accept slower delivery speeds in exchange for reasonable prices. This model has been highly successful at Ocado in the UK, but U.S. consumers place greater value on delivery speed. In recent years, companies like Instacart and DoorDash have expanded rapidly and introduced services such as 30-minute delivery.

Kroger acknowledged this reality in its November 18 announcement, saying it is deepening partnerships with third-party delivery companies. Kroger also said it would pilot "capital-light, store-based automation" in high-traffic markets—an apparent recognition of the micro-fulfillment technology grocers have been testing in recent years, which Amazon is currently piloting at a Whole Foods Market store in Pennsylvania.

Fenyo noted that micro-fulfillment technology also faces significant headwinds. He believes that deploying automated order assembly systems inside stores may not be cost-effective outside areas with large shopper populations and high online order volumes.

Kroger's decision to reduce its automation investment is also a major blow to Ocado. Ocado has long viewed Kroger as a key endorsement of its warehouse automation technology. Shares of the British robotics company have fallen sharply and are now back to levels seen when it went public 15 years ago.