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Ocado climbs into vertical farming with acquisition and new joint venture

Online grocery company acquires Europe's largest vertical farm, based in Scunthorpe, and invests in the formation of a new joint venture with US and Dutch vertical farmers
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Ocado aims to locate its robot-operated depots next to vertical farms

Ocado Group plc (LON:OCDO) shares were climbing steadily higher as Monday’s session progressed after the online grocery specialist made an investment in the “vertical farming” industry.

Part of the total £17mln investment will go towards the acquisition of a 58% stake in Scunthorpe-based Jones Food Company, the largest operating vertical farm in Europe.

READ: Ocado hit as Jefferies cuts stance to ‘underperform’ on valuation grounds after strong gains

This diagonal move by Ocado away from its core online grocery business also included the forming of a joint venture called Infinite Acres with vertical farming companies 80 Acres Farms of the USA and Priva Holding of the Netherlands, with each of the trio owning a third of the equity.

Ocado, which has won deals to supply its technology and services to several overseas supermarket chains, said the “extreme density of vertical farms allows them to be placed much closer to customers, potentially co-located next to our partners’ fulfilment centres, supermarkets and other locations near population centres”.

Ocado shares, after falling by more than 20% from April’s all-time highs in recent weeks, were up 3.3% to 1,150p just before midday on Monday.

Vertical farming, where food is produced indoors in vertically stacked floors or on vertically inclined surfaces, is designed to reduce water and land usage, as well as employing fewer pesticides and reducing waste.

Like peas in a pod

"We believe that our investments today in vertical farming will allow us to address fundamental consumer concerns on freshness and sustainability and build on new technologies that will revolutionise the way customers access fresh produce,” said chief executive Tim Steiner.

He said the company's ultimate hope was to co-locate vertical farms within or next to customer fulfilment centres (CFCs), like peas in pod next to Ocado Zoom's microfulfilment centres "so that we can offer the very freshest and most sustainable produce that could be delivered to a customer's kitchen within an hour of it being picked".

Broker Numis, which rates the FTSE 100 group as a 'buy', said advancements in robotics and LED lighting are improving the economics within what is a relatively nascent industry.

“These investments present an opportunity for Ocado to leverage its technologies in a related industry whilst building expertise in vertical farming with a view to co-locating facilities with CFCs,” analysts said.

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