Kroger Ocado strategy a ‘misstep’, Jefferies says

Kroger stock has been downgraded from a buy to a hold by analysts at equity research firm Jefferies.

It cited Kroger’s partnership with Ocado as a concern and a "misstep when compared to micro-fulfilment," according to a note emailed to investors. Jefferies believes that each Ocado shed could take about four years to turn a profit and return limited market share gains.

"Unfortunately, details are lacking from [Kroger] concerning this agreement, including minimum capacity requirements, fee structure, and other assumptions that drive [management’s] expectation of a positive ROI by [year three]," analysts wrote.

Speedy delivery will be an issue with the Ocado sheds, given their location outside major metro areas. With a price tag of around $55 million each and a two-to-three-year buildout timeframe, this is an expensive, time-consuming model that could run into roadblocks in a rapidly changing e-commerce space, Jefferies argues.

Sign up for our free retail technology newsletter here.