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Kroger, Ocado join forces as battle with Amazon heats up

Replying to Amazon's foray into the food aisle with its purchase last year of Whole Foods, Kroger has struck a deal with British online grocer Ocado. 

Kroger is purchasing a 5 percent stake in Ocado and will license technology used to run automated warehouses and deliver groceries to consumers' doors, the company said Thursday in announcing the deal.

Kroger and Ocado are looking for three sites to develop automated warehouses in the U.S., with up to 20 such facilities planned in the next three years.

Shares of Ocado surged more than 60 percent in London on news of the agreement, the first in the U.S. for the U.K. company. Kroger shares also gained, up 3 percent in mid-morning trade.

Kroger, which along with its other retail operations is the second-largest supermarket chain in the U.S. by revenue, operates 2,800 retail food stores under about 20 brand names, including Pick 'n Save and Fred Meyer.

Amazon's strategy for Whole Foods 02:53

Amazon's $13.7 billion acquisition of Whole Foods in 2017 shook up the competitive landscape for supermarkets. With more Americans buying groceries online, Walmart earlier this year also moved to broaden its grocery home-delivery service

British consumers have adopted more rapidly to buying groceries online, so a U.K. company may bring added insight to the emerging online market in the U.S.

"The grocery online market in the U.S. has been relatively underdeveloped compared with some European markets. It represents less than 2 percent of the total grocer market, versus 7.5 percent in the U.K., but is now growing very fast and is an enormous growth market," Luke Jensen, CEO of Ocado, told CNBC on Thursday.

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