Kroger closing automated fulfillment centers as it tries to make delivery faster and cheaper

Kroger said Tuesday it’s closing three automated fulfillment centers as part of an effort to make its delivery operations faster and more profitable.

The nation’s largest grocer said it will close facilities in Pleasant Prairie, Wisconsin; Frederick, Maryland; and Groveland, Florida, in January. The company said it will monitor the performance of its five remaining facilities.

“We are taking decisive action to make shopping easier, offer faster delivery times, provide more options to our customers, and we expect to deliver profitable sales growth as a result,” Kroger Chairman and CEO Ron Sargent said in a statement.

Kroger partnered with British grocery technology company Ocado Group in 2018 to build warehouses where robots would pick and pack grocery delivery orders. Initially, the companies planned 20 locations, but only eight have been built so far.

Kroger said it will incur a $2.6 billion charge in its fiscal third quarter related to the closure of its operations. The company said it expects the closures will improve its e-commerce operating profit by $400 million in 2026.

Ocado shares fell 16% Tuesday on the London Stock Exchange. Kroger shares were up 1% Tuesday morning on the New York Stock Exchange.

During a conference call with investors in September, Sargent said that in most locations, it makes sense to use stores to fulfill delivery orders instead of centralized warehouses.

Stores are closer to customers, so orders can be delivered more quickly and cheaply, Sargent said. He said Kroger is capable of delivering orders in less than two hours from 97% of its 2,700 U.S. stores.

“Stores are our most important asset,” Sargent said.

Sargent said that in some high-density areas with strong delivery demand, automated fulfillment facilities are delivering better results.

At the same time, Kroger is also leaning more heavily into partnerships with third-party providers. In September, the company said it was expanding its partnership with DoorDash. DoorDash offered delivery of sushi, flowers and prepared meals from Kroger starting in 2022, but it now offers delivery of Kroger’s full assortment of products.

Last month, Kroger announced a similar expanded partnership with Uber Eats. And earlier this month, Kroger said it was working with Instacart to expand express delivery from its stores. Kroger will also be one of the first retailers to offer access to Instacart’s AI assistant, which builds delivery orders automatically based on customers’ preferences and provides meal ideas.