Title
Authorization to Enter into Development Agreement with Kroger Company (Ordinance S-47239)
Description
Request authorization for the City Manager, or his designee, to enter into a development agreement, and to execute any other instruments or documents necessary with Kroger Company for the development of an automated online grocery fulfillment center in Phoenix. Further request the City Controller to disburse funds in an amount not to exceed $692,000 with this action. Funding is available in the Strategic Economic Development Fund.
Report
Summary
After a search involving multiple states and regions, Kroger Company (Kroger) and Ocado Solutions (Ocado) expressed a desire to expand their operations into Phoenix. This unique partnership includes Kroger Company, known as Fry's Food Stores, in the local market. Kroger, established in 1883, is the nation's largest supermarket by revenue and second largest general retailer. Ocado, a British online supermarket, is the world's largest dedicated online grocery retailer. Ocado has no chain of stores and does all home deliveries from warehouses. Ocado has made advances in robotics technology and is considered a leader in the online grocery industry. The Kroger-Ocado partnership started in 2018 when they announced their intent to deliver 20 automated customer fulfillment facilities in the U.S.
This expansion will result in an $89 million capital investment by Kroger for construction of an approximately 222,850 square foot building. The Kroger operations in Phoenix will result in up to 692 new jobs to be phased in during Fiscal Year 2022-23 through 2025-26, with an average annual base salary of $44,000.
The City recognizes the resulting substantial economic impacts to the City and region from the Kroger expansion into Phoenix. This innovative technology will deliver fresh food quickly and accurately, and streamline grocery supply chains. To remain competitive on an international level and ensure innovative technology positions are created in Phoenix, the terms of a Development Agreement (DA) are as follows:
- Kroger agrees to expand into the City with the development of an automated customer fulfillment facility in Phoenix.
- Kroger intends to create up to 692 total new jobs within five years of entering into the DA. The City realizes 692 jobs is a program model estimate and is not contingent upon the exact total job creation nor is contingent upon the jobs created by each company.
- The City will provide $1,000 to Kroger for each net new employee earning an annual wage exceeding $44,000 in their second year of employment. If the jobs are not created in the specified timeline, the City will not be obligated to pay.
- Entering into the DA and participation in the job creation fund does not preclude Kroger from working with the City's Workforce Innovation Opportunity Act Program or any other local and/or State program.
- The DA may contain other terms and conditions deemed necessary by City staff.
Financial Impact
The total contract amount will not exceed $692,000 over a four-year period. Funding is available in the Strategic Economic Development Fund.
Location
Kroger is conducting due diligence for locations within Phoenix and a site will be identified before entering into a Development Agreement.
Department
Responsible Department
This item is submitted by Deputy City Manager Jeff Barton and the Community and Economic Development Department.