Ocado Group PLC (LSE:OCDO) shares jumped 18.5% after it announced a further push into Asia with a tie-up with the retail arm of South Korean conglomerate, Lotte Group.
The online food retailer has signed a deal with Lotte Shopping to develop Lotte's online business using the Ocado Smart Platform with plans for six customer fulfilment centres (CFCs).
Lotte Group has interests spanning retail, food, hotels and chemicals, with a total annual revenue of around £45bn, while Lotte Shopping operates department stores, hypermarkets, supermarkets and e-commerce in South Korea, with more than 1,000 stores nationwide and an annual revenue of £9.5bn.
Ocado said it plans to implement in-store fulfilment in 2024, with the first CFC due to go live in 2025.
The deal is expected to create significant long-term value but will be negligible on earnings in the current financial year as no cash fees will be recognised in revenue until operations commence.
Minimal additional capex in full-year 2023 is expected with the majority of additional capex expected in the 12 months prior to the opening of the CFCs.
The partnership will also bring new technologies into Ocado with plans for the first multi-storey CFC which Ocado said would enable a more efficient use of space in densely built environments.
Lotte will pay Ocado Solutions certain fees upfront and during the development phase, then ongoing fees linked to both sales achieved and installed capacity within the CFC and service criteria.
Tim Steiner, CEO of Ocado Group, said: “This partnership brings the Ocado Smart Platform, the most advanced technology for serving online grocery, to one of the most mature ecommerce markets in the world.”
Analysts at Peel Hunt said: “Clearly signing this deal is another positive step forward in the Ocado Solutions story and hopefully indicates that the grocery world is back in forward-looking mode.”
“But more interestingly is the conglomerate nature of the larger Lotte Group, since it was announced on 28 July that Ocado's previous COO would be taking up a new role as the CEO of a new business in Ocado to focus on new market sectors alongside grocery.”