Economy

Ocado shares soar after it seals Groupe Casino deal

Ocado shares soar after it seals Groupe Casino deal

Groupe Casino will also use Ocado's e-commerce technology to develop its own online business, starting with its sub-brand Monoprix.fr.

Ocado chief executive Tim Steiner (left) said: "We are delighted that Groupe Casino has chose to partner with Ocado Solutions to grow and develop its online food business".

Shares in Ocado jumped on Tuesday after the online grocer announced an global tie in with France's Casino Guichard.

In order to provide greater clarity on the split between Ocado Retail and Ocado Solutions, the group said that from the publication of full year 2017 results, it will be introducing segmental reporting of sales and EBITDA. In return, Casino will pay Ocado upfront fees after signing the deal, and during the development phase.

Amazon's expansion into the grocery business has fuelled concerns about intense competition in the sector.

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The agreement includes plans to build a state-of-the-art automated warehouse using the United Kingdom firm's technological know-how to serve the Greater Paris area and the Normandy and Hauts de France regions.

Ocado said it expects the Groupe Casino tie-up to be profitable by 2019.

Jean-Charles Naouri, Groupe Casino's CEO, said the agreement represented a "major leap in terms of quality: 50,000 food items will be offered in the first stage to customers in the Greater Paris area with precise and speedy delivery at home and through a platform which makes it achievable to do this profitably". On the Paris bourse, shares in Casino were 2.1% higher at €49.24. The build and launch of the fulfilment center is expected to last "at least" two years.

"However, justifying the Ocado share price requires one big deal per year for the foreseeable future and we don't believe there is sufficient deal potential for this", they said.

Ocado expects it to be earnings neutral next year as it invests in setting up the partnership, with profitability beginning to grow from the following year.