The grocery giant is pivoting away from automated fulfillment centers in favor of store-based delivery and third-party partnerships
The nation’s largest grocery chain is pulling the plug on a significant portion of its robotic warehouse experiment. Kroger announced Tuesday it will shutter three automated fulfillment centers as part of a broader strategy to make its delivery operations faster and more profitable. The decision marks a major shift in how the retail giant approaches online grocery shopping, moving away from centralized automation and back toward its physical stores.
The closures will affect facilities in three locations across the country. 1. Pleasant Prairie, Wisconsin, 2. Frederick, Maryland and 3. Groveland, Florida will all cease operations in January. The company plans to monitor the performance of its five remaining automated facilities before making any additional decisions about their future.
The financial impact hits hard
Kroger will take a substantial $2.6 billion charge in its fiscal third quarter related to shutting down these operations. Despite the hefty immediate cost, company leadership believes the move will pay dividends down the line. The grocery chain expects the closures to improve its e-commerce operating profit by $400 million in 2026, suggesting the automated centers were draining resources rather than generating returns.
The market reacted swiftly to the news. Shares of Ocado Group, the British grocery technology company that partnered with Kroger on these facilities, plummeted 16% on the London Stock Exchange. Kroger shares moved in the opposite direction, climbing 1% on the New York Stock Exchange as investors appeared to welcome the strategic pivot.
The Ocado partnership falls short
Kroger first joined forces with Ocado Group in 2018 with ambitious plans to revolutionize grocery delivery. The partnership aimed to build 20 high-tech warehouses where robots would handle the picking and packing of online grocery orders. The vision promised efficiency and speed that would transform how Americans receive their groceries.
Reality proved far more challenging than the initial blueprint suggested. Only eight facilities were ever constructed, less than half the original target. The technology required significant capital investment while delivering results that failed to justify the expense in most markets.
Stores prove more valuable than robots
Chairman and CEO Ron Sargent offered clear reasoning behind the strategic shift during a September conference call with investors. In most locations, using existing stores to fulfill delivery orders makes more practical and financial sense than operating centralized warehouses. The logic comes down to simple geography and economics.
Physical stores sit closer to customers, enabling faster delivery times and lower transportation costs. Kroger can deliver orders in less than two hours from 97% of its 2,700 U.S. stores, creating a delivery network that rivals or surpasses what specialized fulfillment centers can achieve. The company’s existing real estate footprint becomes its greatest competitive advantage rather than a liability.
Sargent acknowledged that automated fulfillment facilities still deliver better results in certain high-density areas with particularly strong delivery demand. These specific markets can support the overhead costs associated with robotic warehouses, but they represent exceptions rather than the rule for Kroger’s nationwide operations.
Embracing third-party delivery partnerships
While stepping back from its own automated infrastructure, Kroger is simultaneously expanding relationships with established delivery platforms. The grocer announced an expanded partnership with DoorDash in September. What began in 2022 as delivery service for sushi, flowers and prepared meals now encompasses Kroger’s complete product assortment.
Similar expansion came through a partnership with Uber Eats announced last month. These relationships allow Kroger to tap into existing delivery networks and customer bases without bearing the full cost of building and maintaining its own infrastructure.
The company is also deepening its collaboration with Instacart to expand express delivery from stores. Kroger will be among the first retailers offering access to Instacart’s AI assistant, which automatically builds delivery orders based on customer preferences and provides meal planning ideas. This technology integration happens without requiring Kroger to develop the artificial intelligence capabilities in-house.
The bigger picture for grocery delivery
Kroger’s decision reflects broader challenges facing the grocery delivery sector. The pandemic-era surge in online shopping created unrealistic expectations about consumer behavior and profitability timelines. Many retailers discovered that delivery operations remain difficult to execute profitably, particularly when competing against established players with scale advantages.
The shift back toward store-based fulfillment represents a more sustainable approach for traditional grocers. By leveraging existing infrastructure and partnering with specialized delivery companies, Kroger can offer competitive service without the enormous capital expenditures required for automated warehouses.
Information sourced from The Associated Press