Ocado (LON:OCDO) shares dropped roughly 10% in London trading after the company confirmed that Sobeys will close its robotic customer fulfilment centre (CFC) in Calgary. The move, Ocado said, reflected a smaller market size in the Alberta region and growth that has been weaker than the partners originally forecast.
The British technology and online grocery company noted that Sobeys’ two other Canadian facilities, located in the Greater Toronto and Montreal areas, are performing well and will continue to operate. Ocado added that new technology is being introduced at those sites to support same-day and short lead-time orders. A planned facility serving the Vancouver area remains "paused."
In a statement on the network changes, Ocado’s chief executive, Tim Steiner, said: "We have taken a pragmatic approach to refining the network and placing our partnership on the right footing to secure long-term, sustainable growth in the Canadian market."
Analysts said the unexpected closure is likely to weigh on investor sentiment. Morgan Stanley analyst Luke Holbrook commented that the shutdown - which follows a number of fulfilment centre closures across the sector - would "continue to raise questions on what the unit economics are for grocery retailers installing Ocado’s automation equipment."
On the financial impact, Ocado said it expects to receive £18 million in compensation in the current financial year related to the Calgary shutdown. The company also warned that the closure will reduce fee revenue by around £7 million in its 2025/26 year.
Holbrook estimated that the Calgary site had been relatively small, with an annualised revenue run rate of roughly £8 million to £9 million. Ocado reiterated that its exclusivity arrangements in most markets expire at the end of 2025, which will allow the company to seek additional partnerships in future, and reaffirmed its focus on turning cash flow positive in the 2025/26 financial year.
The decision to close the Calgary CFC highlights tensions between automation investments and local market scale. Ocado framed the change as a network refinement aimed at sustainable growth in Canada, while analysts flagged that it could intensify scrutiny of the economics of deploying automated fulfilment platforms for grocery retailers.
Key takeaways
- Ocado shares fell about 10% after Sobeys announced the closure of its Calgary robotic fulfilment centre, citing slower online grocery growth in Alberta.
- Greater Toronto and Montreal fulfilment centres will remain operational with technology upgrades to support faster orders; a Vancouver-area facility is paused.
- Ocado expects £18 million in compensation this financial year related to the Calgary closure but said fee revenue will be about £7 million lower in 2025/26; the company is targeting positive cash flow in 2025/26.
Risks and uncertainties
- Investor sentiment risk - the surprise closure may pressure shares and investor confidence, particularly following other sector fulfilment centre shutdowns.
- Unit-economics risk - the move raises questions about the profitability of grocery retailers deploying Ocado’s automation equipment, affecting equipment suppliers and grocery operators investing in automation.
- Revenue and partnership timing risk - the closure reduces fee revenue in 2025/26 and the expiry of exclusivity at the end of 2025 will alter competitive dynamics and partnership options.