Kroger’s decision to close three highly automated grocery warehouses and walk away from a flagship technology alliance marks one of the sharpest reversals yet in the push to automate food retail. On November 18, 2025, the company said it would shutter customer fulfillment centers in Pleasant Prairie, Wisconsin; Frederick, Maryland; and Groveland, Florida by January 2026, recording a $2.6 billion impairment charge and effectively ending its seven-year partnership with UK-based Ocado in its original form. What was once touted as the future of online grocery has been scaled back to a more cautious, hybrid strategy built around local stores, third‑party delivery platforms, and selective use of automation.
The Rise and Retreat of the Ocado Bet
When Kroger and Ocado announced an exclusive U.S. partnership in May 2018, the plan drew intense attention from investors and rivals. The companies outlined a network of as many as 20 automated warehouses across the country, equipped with robotics systems capable of handling up to 500,000 units per day and intended to rival Amazon and Walmart on speed and cost.
Under then‑CEO Rodney McMullen, Kroger cast Ocado as “the best in the world” in this type of technology and framed the initiative as a way to “redefine the customer experience.” The first wave of centers gradually came online: Groveland in June 2021, Pleasant Prairie in June 2022, and Frederick in June 2023. In the end, however, only eight customer fulfillment centers launched before Kroger halted expansion.
By September 2023, the company had already signaled concern, announcing a pause on additional sites while it examined whether existing facilities could meet internal performance and profitability targets. That analysis ultimately led to the November 2025 closure announcement and a decision to unwind most of the original Ocado blueprint.
Where the Model Broke Down
Industry specialists and former executives point to geography, timing, and economics rather than robotics performance as the core problems. Kroger sited some of its highest‑cost automated facilities in regions where it lacked a dense store network or sufficient population to feed steady online demand. Former Kroger executive and consultant Ken Fenyo summarized the issue as too few orders and too much distance between the warehouses and customers, undermining both utilization and delivery efficiency.
At the same time, shopper expectations around delivery speed intensified. Multiple surveys over the past several years have shown that a majority of online grocery customers expect orders within roughly a day, with a large share seeking narrow delivery windows of just a few hours. Centralized fulfillment centers located far from neighborhoods struggled to meet these demands at a sustainable cost.
Competitors that leaned on existing stores instead of remote warehouses gained an advantage. Target, for example, reported that about 80 percent of its online orders were fulfilled from its stores, which helped cut same‑day delivery costs dramatically compared with shipping from distant distribution centers. Across the sector, research has found that using stores as local hubs can significantly shorten delivery distances and reduce last‑mile costs, even if the exact savings vary by market and network design.
Financial Fallout and Workforce Impact
Unwinding the Ocado strategy has come at a high price. In addition to the $2.6 billion impairment charge tied to the closures, Kroger agreed to pay more than $350 million to Ocado as compensation for shutting facilities early and canceling future sites. Ocado described the payment as covering fees related to early termination but said it would reduce its recurring fee income by about $50 million a year going forward.
The human impact has been substantial. The shutdowns of Pleasant Prairie, Frederick, and Groveland cost more than 1,000 employees their jobs. Another 132 workers were affected by the closure of a spoke facility in Nashville that had fed orders into the automated network. For communities in Wisconsin, Maryland, Tennessee, and Florida, the reversal translates into lost positions that had been tied to what was promoted as a long‑term technology investment.
Inside Kroger, leadership changes coincided with the strategic shift. Ron Sargent became interim CEO in March 2025 after McMullen’s departure following an ethics investigation. Sargent, who began his retail career in a Kroger grocery store in Kentucky in 1974, emphasized proximity to customers and operational discipline. By September 2024, he was publicly committing to a detailed, site‑by‑site evaluation of the Ocado network, foreshadowing the retrenchment that followed.
A New Hybrid Model and Ocado’s Uncertain Future
Ironically, Kroger expects its e‑commerce profitability to improve as it dismantles parts of the automated system. The company projects that closing the three fulfillment centers will lift e‑commerce operating profit by about $400 million in 2026, an estimate that underscores how far the facilities were from achieving sustainable returns.
In their place, Kroger is leaning into its more than 2,700 stores as the backbone of online fulfillment. Company leaders say using existing locations allows them to serve new customer segments and expand rapid delivery services without the heavy capital spending required for standalone warehouses. To close the speed gap with rivals, Kroger has deepened ties with established delivery platforms. Instacart now serves as the primary delivery partner integrated into Kroger’s digital channels, DoorDash covers more than 2,600 locations, and an Uber Eats Marketplace tie‑in launched in early 2026, enabling delivery windows as short as 30 minutes in some markets.
Kroger has not abandoned automation entirely. Five Ocado‑powered fulfillment centers remain in operation in Ohio, Texas, Colorado, Georgia, and Michigan, and a Phoenix site featuring Ocado’s “AutoFreezer” technology is slated to open in 2026. The company is also testing smaller, “capital‑light” automation within individual stores in high‑volume areas, including micro‑fulfillment systems that can pick items several times faster than manual methods while retaining the benefits of neighborhood proximity.
For Ocado, the fallout has been severe. The company’s share price dropped sharply on the day Kroger announced the closures and is down more than 90 percent from its peak in September 2020, trading near levels last seen around its stock market debut. With the Kroger arrangement serving as Ocado’s signature U.S. reference case, the visible difficulties of the project have raised doubts about its ability to sign major new partners in the American market.
Ocado has responded by cutting costs, trimming research and development spending, and reducing headcount across eight global R&D centers, nearly half of them in the UK. Its 2024 financial results showed narrower pre‑tax losses of £374.5 million, but also pointed to slower expected growth in its technology solutions business in 2025. The company maintains a target of achieving positive cash flow by fiscal 2026, yet analysts increasingly question whether its capital‑intensive model can deliver the profitability once envisioned.
A Sobering Adjustment for Online Grocery
For the broader grocery sector, the Kroger‑Ocado experience reinforces a sobering adjustment. Industry estimates indicate that online grocery’s share of total sales in 2024 settled below the peak levels seen during the height of the pandemic and came in lower than many long‑term projections made at that time. Retailers appear to have overestimated demand for highly engineered fulfillment infrastructure while undervaluing the flexibility and cost advantages of using stores as local hubs.
Kroger now describes its future direction as a flexible, hybrid network that combines its extensive store footprint, partnerships with established delivery platforms, and targeted use of automation. For an industry that, only a few years ago, envisioned robots in remote warehouses replacing much of the traditional store role, the shift signals a recalibration: technology remains part of the equation, but success depends on how well it is matched to geography, demand, and the everyday expectations of shoppers.
Sources
Kroger Q3 2025 Earnings Announcement and Strategic Update; Supply Chain Dive reporting (November 2025)
Reuters Retail and Consumer Business Reporting; Ocado Group Partnership Update (December 2025)
Grocery Dive Industry Analysis; McKinsey Center for Future Fulfillment Research
Target and Walmart E-Commerce Fulfillment Case Studies (2024–2025)
Ocado Group Full-Year Results 2024; Financial market reports on Ocado stock performance decline