Ocado signs deal with Canadian supermarket group for its Ocado Smart Platform

Ocado's technology business starting to gain traction with third major customer signing-up

British supermarket and online commerce technology group Ocado has signed-up its third major customer with a deal with Sobeys, a Canada's second-largest supermarket chain with 1,500 stores and sales of C$23.8 billion (£13.72bn) in fiscal 2017.

Ocado's deal with Sobeys will be exclusive to the retailer and will enable it to roll-out an end-to-end solution for online grocery services.

Ocado's Smart Platform will encompass everything from the web front-end to warehouses and warehouse automation technology, including its ‘grid' and robotics, as well as intelligent routing for delivery services. The deal will also include ongoing support and engineering.

Sobeys and Ocado will develop the first ‘customer fulfilment centre in the Greater Toronto area of Canada in a build that is expected to take around two years. With Amazon opening its first Amazon Go in Seattle this week, the hour is late for supermarket chains to offer their own online and home delivery services.

Sobeys and Ocado will also consider rolling out the format to other major urban centres in Canada.

Sobeys CEO Michael Medline said that the initiative would enable the supermarket chain to "built an online offer in a manner that is profitable and creates exceptional value for our customers, investors and supplier partners".

Meanwhile, Luke Jensen, CEO of Ocado Solutions - Ocado's technology development arm - suggested that the North American retail market was reaching a tipping point.

"Channel shift to online in North America is gaining pace as consumers increasingly seek the benefits of grocery shopping from the comforts of their own homes," said Jensen, who also hinted at further deals in the pipeline.

However, while the deal ought to have a long-term benefit for Ocado, in the short-term it will entail additional capital expenditure of around £15 million. The company's statement also implied that the deal is tied to transaction volume, and that it expects Sobeys to sign further deals to cover more Canadian metropolitan areas.

The Sobeys deal comes just months after Ocado signed a deal with French supermarket Groupe Casino late last year and the 2014 deal with Morrisons, the only retail partnership the company plans to have in the UK. At the time of the Morrisons deal, the company claimed that it would be "the first of many", although it took three years before the second deal was signed.

Ocado's strategy is to offer exclusivity to national retailers in their geography, providing an incentive to sign-up with the company, particularly if their own online offering is flagging.

Sobeys brands in Canada include Safeway, Foodland and Thrifty Foods, as well as Sobeys. The brands are wholly owned by Empire Company Limited, which was plunged into big losses in 2016 due to the botched acquisition of Safeway.