An Ocado grocery delivery van is driven along a street in London, Britain, March 25, 2023. REUTERS/Toby Melville

By James Davey and Raechel Thankam Job

(Reuters) -Shares in British online supermarket and technology group Ocado slumped on Tuesday after U.S. partner Kroger said it would close three automated warehouses in January, dealing a major blow to the Ocado investment story.

Ocado stock was down 20% at 1507 GMT as the group also said its fee revenue will reduce by about $50 million next year as a result of the closures.

"We struggle to see Ocado getting further material partnerships in the U.S. given the failure of the Kroger partnership," Bernstein analyst William Woods said.

Kroger had in September signalled a potential retreat from investment in automated warehouses when it said it was conducting a "site-by-site" review of the fulfilment network it had built in partnership with Ocado.

Ocado struck a deal with Kroger in 2018 to help the U.S. retailer ratchet up its grocery delivery business.

The initial agreement saw Kroger identify 20 U.S. sites to build robotic warehouses, or customer fulfilment centres as Ocado calls them, making the group Ocado's most important partner.

However, so far, only eight sites have gone live and three are now slated for closure - at Frederick in Maryland, Pleasant Prairie in Wisconsin and Groveland in Florida.

Ocado and Kroger will continue to operate the remaining five sites.

"Ocado continues to support Kroger to optimise logistics operations and drive profitable volume growth in these remaining sites, with constructive ongoing discussions around further use of Ocado's technology to support Kroger," Ocado said in a statement.

It said it expected to receive compensation from Kroger for fees related to the early closure of the three sites of more than $250 million.

(Reporting by James Davey in London and Raechel Thankam Job in Bengaluru; Editing by Shreya Biswas and Paul Sandle)