Kroger, ClusterTruck Launch Ghost Kitchens Amid Rising Food Delivery Demand

Leading grocery chain Kroger and technology start-up ClusterTruck will launch two on-premise ghost kitchens at Kroger stores in Indianapolis, Indiana and Columbus, Ohio. The launch follows a pilot conducted by the two companies last year at stores in Carmel and Indianapolis, Indiana and Columbus, Ohio.

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The two-on premise ghost kitchens or delivery-only kitchens will offer a variety of over 80 freshly prepared meals on-demand with no service or delivery fees. The two Kroger (KR) stores will repurpose about 1,000 square feet of space for ClusterTruck staff to prepare meals for quick delivery and in-store pickup.

ClusterTruck is considered a pioneer in the ghost kitchen space and has a proprietary software system that creates custom algorithms to optimize kitchen and delivery operations with no dependence on a third-party delivery provider. ClusterTruck ensures that all orders are delivered within 7 minutes of preparation and on average less than 30 minutes of ordering.

Kroger’s strategic move to open ghost kitchens comes amid the rising demand for food delivery as the coronavirus outbreak has impacted dining at restaurants and food chains. It is also in line with Kroger’s goal to expand its fresh food offerings and boost online sales. Kroger’s digital sales surged 127% in the second quarter of fiscal 2020 as more customers chose pickup and delivery options for purchasing groceries amid the pandemic. (See KR stock analysis on TipRanks)

Last month, Merrill Lynch analyst Robert Ohmes downgraded Kroger to Hold from Buy and lowered his price target to $40 from $42. The analyst believes that the company will continue to benefit from online grocery demand. However, he noted that “momentum is slowing from Kroger’s omnichannel initiatives, and the buildout and scaling of [e-commerce supermarket partner] Ocado network is still likely a long way out in terms of proving the strategy’s efficacy as a long-term delivery solution in the U.S.”

Overall, the Street is cautiously optimistic on Kroger with a Moderate Buy consensus based on 3 Buys, 9 Holds and no Sells. Kroger stock has risen about 19% so far this year and the average analyst price target of $37 indicates further upside potential of 7.4% ahead.