Grocery giant Kroger plans to step up store openings next year as it closes three of its e-commerce fulfillment centers and shifts order delivery to its brick-and-mortar retail locations.
The Cincinnati-based company, the biggest pure-play U.S. supermarket operator with roughly 2,700 stores, discussed its expansion into new Southeastern markets such as Jacksonville, Florida, on Thursday when it reported its third-quarter earnings. The grocer also discussed its troubled foray into fulfillment centers to handle online orders. Next month Kroger plans to shutter a trio of its eight automated e-commerce properties, and it will take a $2.6 billion impairment charge in the third quarter as a result.
The facilities slated to be closed are at 7925 American Way, Groveland, Florida, 375,000 square feet; 9091 88th Ave., Pleasant Prairie, Wisconsin, 330,000 square feet; and 7106 Geoffrey Way, Frederick, Maryland, 717,135 square feet. They didn't meet financial expectations, according to Kroger.
The moves, announced last month, follow Kroger completing a strategic review of its e-commerce business, interim CEO Ron Sargent told Wall Street analysts. With the changes, he said, Kroger expects its online business to see black ink, a $400 million improvement in profitability in 2026.
“Based on our customer and store-level analysis, in those geographies where we will close sites but continue to operate stores, we expect to retain most of our customers and their e-commerce spend through store-based fulfillment and in-store shopping,” Sargent said on the earnings call. “By using our store network, we’re improving both geographic coverage and speed with delivery in as little as 30 minutes.”
With more fulfillment now to be handled in stores, Kroger recently expanded its relationships with third-party delivery providers Instacart, DoorDash and Uber Eats, according to Sargent.
Ironing out problems with its customer delivery is the latest hitch that Kroger — parent of a variety of chains including not only its namesake stores but under the Harris Teeter, Ralphs and Fred Meyer brands — has had to handle. Its proposed $24.6 billion acquisition of another supermarket giant, Albertsons Cos., was thrown out by a judge in December last year, leading to litigation and the exit of veteran CEO Rodney McMullen.
Several years ago, with much fanfare, Kroger started opening highly automated centers across the country that use robotics and artificial intelligence to fulfill online grocery orders in a partnership with U.K. tech firm Ocado Group. The goal was to give Kroger a presence in areas where it didn't have stores, such as Florida. But the concept’s execution faced challenges.
“One of the big operational missteps has been with the Ocado partnership to build out automated warehouses,” Neil Saunders, a retail analyst and managing director of analytics firm GlobalData, said Thursday in a note. “In theory this is not a bad idea, but the decisions were predicated on a penetration of online grocery that was overhyped during the pandemic and never materialized. This ultimately means the financial basis of Kroger’s investment was flawed: The volume needed to recoup the capital costs was not there.”
And even though the Ocado model “helped reduce the cost to serve in terms of picking and packing, it never reduced the cost or time to deliver, which in the U.S. can be high because of lower population densities, especially compared to Ocado’s home market of the U.K.,” according to Saunders.
The result “of this poor thinking on Kroger’s part is that the partnership has now been terminated and has, this quarter, created a $2.6 billion impairment charge which has pushed the group to an operating loss of $1.5 billion,” he said.
Saunders described it as “the cost of a misadventure that, with better leadership and thinking, could have been avoided.”
Kroger declined to directly respond to Saunders’ comments. But the company last month said it will not be totally abandoning fulfillment automation.
“Kroger’s hybrid e-commerce offerings will deliver accelerated online growth, using its strong and growing store footprint, well-established third-party delivery providers and automated fulfillment facilities where applicable,” the grocer said.
On the earnings call, Sargent described Kroger’s effort to speed up the expansion of its store footprint.
“We expect to break ground on 14 new stores in the fourth quarter, marking a meaningful acceleration in activity,” he said. “And when you look at 2026, we expect to increase new-store builds by 30%.”
Sargent also made reference to Kroger’s previous announcement that its Matthews, North Carolina-based Harris Teeter chain will be opening five locations in the Southeast, including one in Jacksonville, Florida.
“Looking ahead, we plan to accelerate capital investment in new stores beyond 2025, to strengthen our competitive position, expand into high-potential geographies and support long-term growth,” he said.
He didn’t specify how many new stores Kroger will open next year, and a company spokeswoman declined to comment on the number slated.
“I think we also have opportunities to grow through acquisition, and we haven’t ruled that out despite our last few years with Albertsons,” Sargent said. “When you look at long-term aspirations, we expect and plan to be a national retailer. ... We think we’ve got great opportunities to grow stores. And I think frankly, that’s been one of our biggest challenges over the last few years is we haven’t allocated enough capital to growing stores because we have allocated a lot of capital in other areas, like fulfillment centers.”
The new Harris Teeter stores are coming to the following locations:
- Jacksonville, Florida, Atlantic Boulevard and Kernan Boulevard North. Construction of the 61,000-square-foot store is expected to start in the spring.
- Clemson, South Carolina, 501 Old Greenville Highway. Construction of the 53,000-square-foot store is set for spring.
- Kannapolis, North Carolina, North Main Steet and Loop Road. Construction is slated for next fall on the 53,000-square-foot store.
- Lake Wylie, South Carolina, WestLake Village, State Highways 55 and 49. Construction is to start this winter on 61,000 square feet.
- Fort Mill, South Carolina, Dobys Bridge Road and Fort Mill Parkway/Catawba Ridge Market. Construction is set for winter on 61,000 square feet.