January 22, 2018 / 8:08 AM / in a year

UPDATE 1-Ocado to tap into Canada's online grocery market with Sobeys tie-up

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Jan 22 (Reuters) - British online grocer Ocado on Monday said it had signed an agreement with Sobeys Inc to develop the online grocery business at Canada's second largest food retailer.

Under the deal, the two companies will develop a customer fulfilment centre (CFC) in Toronto and will also consider developing more centres in Canada's dense urban areas.

The British online grocer said Sobeys would make some upfront payments on signing the deal and during the development phase and would make further payments later.

Ocado said it expects the deal to be earnings neutral in the financial year ending in November and sees additional capital expenditure of 15 million pounds ($20.83 million), with more spending expected in future years.

Ocado is courting international supermarkets to buy its proprietary equipment and software so they can develop their own online grocery operations.

A partnership with an international retailer has been seen by analysts as key to Ocado's growth prospects.

French supermarket Groupe Casino signed a deal with Ocado last year to use its grocery e-commerce platform to develop its online business.

Sobeys operates more than 1,500 stores across Canada and recorded sales of C$23.8 billion last year.

$1 = 0.7201 pounds Reporting by Rahul B and Noor Zainab Hussain in Bengaluru; editing by Kate Holton and Jason Neely

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