In a recent announcement, Kroger, one of the largest grocery chains in the United States, revealed its plans to close three e-commerce fulfillment facilities as part of its partnership with British tech firm Ocado. The closures include one facility in South Florida and two others in Texas, with the shutdown set for May 25, 2023.

The affected locations include the Ocado-powered spoke facility in Opa-locka, South Florida, as well as the facilities in San Antonio and Austin, Texas. According to April Martin, a spokesperson for Kroger, the decision to close these facilities is due to them not meeting the benchmarks set for success, despite efforts made to support the facilities through new customer acquisitions and learnings from other locations.

This development marks a setback for Kroger in its bid to become a major player in the home delivery service industry. In Florida, where Kroger operates only one Harris Teeter store, generating online sales has proved to be challenging given the dominance of competitors like Publix and Walmart, who both have a strong presence in the state.

Meanwhile, in Texas, Kroger faces stiff competition from established rivals, including Walmart and H-E-B. Despite operating stores in major markets of the state, Kroger's delivery facilities in San Antonio and Austin will be closed down. The closures come after Kroger began making deliveries from its Dallas hub in the summer of 2022, followed by the opening of the spoke facility in San Antonio and Austin last year.

Kroger's e-commerce partnership with Ocado, announced in 2018, aimed to create an extensive network of automated e-commerce facilities across the U.S. to bolster the grocer's own delivery service. However, as consumer preferences have shifted back toward in-store shopping, growth in e-commerce sales has slowed down. Other grocers, like Ahold Delhaize, have also scaled back their online operations due to this change in consumer behavior.

Kroger's Q4 earnings report showed a 12% increase in digital sales, amounting to $12 billion for the full year. Boost membership and business from customer fulfillment centers drove a 24% increase in delivery sales. Despite the closures of the three spoke facilities, it is important to note that Kroger and Ocado's other automated fulfillment centers will not be impacted.

The decision to close these e-commerce fulfillment facilities reflects Kroger's commitment to optimizing operations and prioritizing existing facilities. As part of this effort, a project called "Project Endeavor" was initiated by Ocado to enhance the efficiency of Kroger's warehouses.

As Kroger evaluates its e-commerce strategy in light of changing market dynamics, the closure of these spoke facilities will undoubtedly have an impact on its expansion plans. The grocer will need to focus on leveraging its remaining customer fulfillment centers and existing partnerships to ensure continued growth in the increasingly competitive online grocery space.