The news: Kroger is overhauling its ecommerce strategy to increase efficiency and deliver profitable growth.

• The grocer is closing three of the automated fulfillment centers it operates in partnership with Ocado after results fell short of expectations, and will closely monitor the performance of the remaining warehouses.
• Kroger will instead rely more heavily on its stores and third-party delivery partners, including its primary fulfillment provider Instacart as well as DoorDash and Uber, to handle fulfillment.

While these moves are costly in the short term, Kroger expects them to boost ecommerce profits by $400 million in 2026 as it moves to a more flexible fulfillment model. Those funds will be used, in part, to lower prices and improve store conditions.

Why it matters: The strategic revamp illustrates the costs of trying to compete directly with Amazon and Walmart on delivery speed—and the growing allure of partnerships with third-party delivery intermediaries.

• Rather than spending billions on infrastructure, retailers can rely on the existing last-mile delivery networks of partners like Instacart and DoorDash to get orders to shoppers’ doors faster.
• Having a presence on third-party delivery platforms brings opportunities to capture ecommerce spending, especially as more users turn to intermediaries more often.
• Kroger noted that the increased traffic and deliveries resulting from its third-party providers will also drive retail media growth thanks to “first of its kind capabilities” that create “new opportunities for CPGs to reach and engage customers with relevant advertising.”

Our take: Kroger’s new ecommerce model should help keep costs down even as online sales continue to soar.

• The company’s partnerships with third-party platforms give it more flexibility to manage rising demand for online grocery delivery without having to invest more in warehouses and workers.
• Any resulting cost savings can be funneled back into the business to help narrow the value gap with competitors like Walmart and improve the customer experience.