Ocado inks partnership with Japanese retail giant Aeon

Ocado on Friday signed a partnership with Japanese retailer Aeon to develop its online grocery business using the Ocado Smart Platform (OSP).

The companies will work together to launch a new online operation with OSP, with the aim of harnessing Ocado's proprietary customer fulfillment centres (CFCs) and end-to-end software applications.

The partnership also lays out plans for the development of a national fulfilment network that has expected sales capacity of around JPY600bn (£424.6m) by 2030, growing to approximately JPY1trn by 2035.

Currently, Aeon operates more than 21,000 stores across various businesses, with operations in 14 countries serving approximately 100m customers.

Ocado said it expected the deal will have no financial impact in the current financial year, though it is anticipated to lead to an additional £25m of operating costs in 2020 due to infrastructure investment.

Chief executive Tim Steiner said: "I am delighted to welcome another extraordinary retailer, and the first from Asia, to the unique international club of grocers powering their ecommerce operations with Ocado.

"This partnership marks a major milestone for the food retail landscape in Japan, and I am excited that Ocado will play a key role in bringing ever greater levels of convenience and choice to Aeon's customers."

At 0840 GMT, the shares were up 11% at 1,345p.

Neil Wilson, chief market analyst at Markets.com, said: "The deal has settled investors' nerves which had been showing signs of fraying on a lack of new partnerships and rumours of trouble with its Kroger marriage. Shares had been selling off steadily for weeks but with this announcement Tim Steiner has again delivered.

"This is a big deal - Aeon is in the top 10 global retailers bracket and is among Asia's largest retailers. This deal gives access to one of the world's largest markets and with probably the best brand Ocado could have picked for entry into the Japanese market. Aeon's footprint is especially large as it has a presence across multiple retail channels, from groceries and convenience to general merchandise. Another smart move by Steiner and co."

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "The international march continues. Ocado’s knocking on the door of a brand new market, after already signing big deals in the USA. This is welcome news, because Ocado’s future relies on growing the Solutions business - where it builds state of the art robotic warehouses that fulfil tens of thousands of online orders a week for its partners. Amazon’s move into groceries means it can paint itself as the industry’s answer to Bezos’ retail titan.

"No one should be popping champagne just yet though. This is an exciting announcement, but the proof will be in the pudding. With a sales-based valuation more than double its long-term average, and no real profits expected any time soon, Ocado will have to wait for years to see if the current partnerships pay off. The warehouse fire earlier this year mean operational performance is still under the microscope. But if Ocado can keep its house in order this time, it may catch the eye of further partners, and that’s where future fortunes lie."