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Investing.com -- Shares of UK-based Ocado (LON:OCDO) fell more than 10% on Friday after Kroger, its largest technology partner, signaled caution on new automated warehouse investments even as its online delivery sales overtook pickup for the first time.
In its second-quarter update, Kroger said delivery from customer fulfillment centers, or CFCs, overtook Instacart’s pick-and-pack service for the first time in the period ended Aug. 16.
Online sales grew 16% in the quarter, with management highlighting stronger performance in delivery.
The company said it had also improved profitability in both pickup and delivery on a quarter-over-quarter basis.
Kroger executives described stores as the grocer’s most important asset, noting that fulfilling online orders from existing locations reduces last-mile costs and brings inventory closer to customers.
The company said 97% of its stores can now offer delivery in under two hours through Instacart. Executives added that more customers are opting for shorter delivery windows and are willing to pay for speed.
Kroger said it is conducting a site-by-site review of its automated fulfillment network to assess demand and profitability. Facilities in high-density areas were said to perform better than those in lower-density regions.
The grocer said it expects to provide an update on its strategic review during the third quarter.
Ocado, which supplies technology for Kroger’s fulfillment centers, has showcased hybrid solutions designed to fit within existing store footprints.
However, it has not announced a customer for the new model. “We do think it calls into question Kroger’s appetite to invest in the remaining 10 CFCs that are outstanding per the original Kroger order,” said analysts at Barclays in a note,.
Barclays maintained its “underweight” rating on the stock, with its view on the European internet sector unchanged at “positive.”