Ocado, the British online supermarket and technology group, has entered South Korea, one of the most mature e-commerce markets in the world, through a partnership deal with Lotte Shopping 023530.KS, the companies said on Tuesday.
Shares in Ocado soared 34% by 0917 GMT, paring 2022 losses to 63%, after Ocado and Lotte said they would develop a network of robotic warehouses, or Customer Fulfilment Centres (CFCs) as Ocado calls them, across South Korea to expand Lotte's online grocery business.
Lotte, South Korea's second largest grocer, becomes Ocado's 12th partner across 10 countries.
'Top Pier' Ranking
Tim Steiner, CEO, Ocado said that the deal ranked in the top tier of its partnership agreements after deals in the United Kingdom, the United States and Japan.
"It's a very significant market for us to move into," he told reporters.
Six CFCs are planned by 2028, with the first scheduled to go live in 2025.
Ocado's in-store fulfilment technology will also be rolled out across Lotte stores from 2024.
Fees to be paid by Lotte to Ocado are similar to those agreed with its other international partners, which include Kroger Co in the US, Aeon 8267.T in Japan and Casino in France.
Development Phase
Lotte will pay certain fees upfront and during the development phase, then ongoing fees linked to both sales achieved and installed capacity.
The pair said the deal was exclusive, meaning they will not take other partners as long as expansion criteria are met.
Lotte Shopping, part of South Korea's Lotte Group conglomerate, operates department stores, hypermarkets, supermarkets and e-commerce, with more than 1,000 stores nationwide and an annual revenue of £9.5 billion ($10.9 billion).
It said the impact of the deal should be negligible on earnings in the current financial year as no cash fees will be recognised in revenue until operations start.
New Capital
Ocado expects minimal additional capital expenditure in its 2023 financial year with the majority of additional capex in the 12 months prior to the opening of CFCs.
Steiner said new capital was not required.
He also said Ocado had a "strong pipeline" of potential new partners.
"We believe that we will sign more deals as our addressable market grows," he said.
Ocado Group's shares have been hurt this year by the performance of Ocado Retail, its retail joint venture with Marks & Spencer.
