Tesco well ahead of the online retailing pack

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Tesco, Britain's leading food retail group, has made no secret of
its global ambitions, with fast growing businesses in eastern
Europe and Asia complementing its number one status in its home
market. But Tesco already has one world-beating business -
Tesco.com, its online unit.

Most western food retail groups have some form of online shop, but the range of products and services they offer - and the success of the business - differ vastly from one group to another.

But Tesco's has undoubtedly been a success, with the group announcing last week that online sales had topped £500 million for the first time, making Tesco.com the world's biggest Internet grocer by some considerable distance.

According to the company, Tesco.com receives more visitors to its site than the combined traffic of all its on-line grocery competitors, and has grown rapidly from its very inception: Tesco.com's total sales in December 2003 alone were the same as it achieved in the whole of 1998, reflecting the significant progress that Tesco has made.

The company claims to be the only online grocer in the UK to service 96 per cent of the population, using a fleet of 1,000 vans and delivering over 110,000 orders a week. Unlike some other chains, Tesco uses its stores to meet online orders, rather than setting up dedicated (and expensive) warehouses and distribution centres.

While this can sometimes be annoying for other shoppers - there are sometimes as many Tesco employees filling trolleys as there are other customers - it has enabled the company to keep its overheads to a minimum.

In the same way that Tesco's stores now stock much more than simple grocery items, Tesco.com has expanded the range of products it offers, now selling everything from books and CDs to acoustic guitars and holidays. In fact, its non-food business has grown very fast, with an uplift of 50 per cent last Christmas alone.

The latest innovative move by Tesco.com was the launch of a phone ordering service for its flower and wine delivery service, and it is the company's ability to be the first to market with ideas such as this which have helped keep Tesco.com ahead of the game, according to chief executive Laura Wade-Gery.

"Were always giving customers something new - this week we've launched Wines Direct, giving our shoppers the change to buy exclusive wines, which aren't available in our stores, over the phone or online. We've many more innovations coming up later this year."

Wade-Gery continued: "Our customers can even swap utility supplier to a better deal through Tesco.com, its that kind of innovative approach to retailing which has kept us one step ahead."

Tesco's e-commerce operations are now spreading to other parts of the world - and not just those where it operates stores, either. The US is the principal market which Tesco still has to crack, but the Internet arm already operates there in conjunction with local retailer Safeway.

Ireland and South Korea are the other countries where Tesco.com currently operates, but the company is expected to roll out the service elsewhere, depending on local infrastructure, demand and, of course, Internet use - there would be little point in introducing it in eastern Europe, for example, until more consumers have access to Internet on a regular basis.

Other groups playing catch-up

Tesco's claim that it is the world's biggest online grocer is one which is hard to substantiate, if only because most of the leading retail groups tend not to give much information about the size of their online operations.

Sainsbury, for example, said only that its online arm, Sainsbury's To You, saw sales grow by 71 per cent in the last full year (to March 2003), but gave no actual sales figures. However, retail analysts M+M Planet Retail​ estimate that Sainsbury's To You sales are around £145 million a year.

Cost management appears to have been the biggest factor hampering the growth of Sainsbury's To You, which got off on the wrong foot with two expensive warehouses used to meet deliveries rather than the store-picking function used by Tesco. Sainsbury has since closed one of the warehouses and is increasingly using its stores to meet orders - 82 to date, covering 72 per cent of the UK - but is still hampered by high costs and does not expect the online business to break even until the second half of the current year.

"Sainsbury's believes that online shopping offers excellent growth potential and that there is a strong fit between online customers and its core customer base both in terms of geographic distribution and demography. However, the service needs to demonstrate that it can cut the cost of customer acquisition and find an effective fulfilment solution,"​ said M+M Planet Retail analyst Bryan Roberts.

In 2001, the website was upgraded leading to an increase in sales of 40 per cent in the second half of the year versus the first half, accompanied by a reduction in customer acquisition costs of 60 per cent.

As for Asda, the other leading UK supermarket group, its online service is currently available from around 30 stores, but the chain missed out on its target of national coverage by the end of 2003. But as the table below shows, the Asda service is growing in popularity as the chain expands, accounting for just over 11 per cent of all visits to UK grocery and alcohol websites, according to data from Hitwise, compared to 32 per cent for Tesco and around 9 per cent for Sainsbury's To You.

British retailers are not the only ones to operate online services, of course. France's leading retail groups such as Carrefour and Auchan have online shops, but food deliveries are carried out only in selected areas of the country, mostly in the greater Paris region. In fact, Carrefour's Ooshop unit, which covers both France and Spain, is reportedly​ up for sale after poor results, and Auchan has already closed​ its Alcampodirect.com unit in Spain after it failed to generate enough business.

But Spanish consumers are prepared to shop online, as the success of Capraboacasa.com, the online service of the Caprabo supermarket group, has shown. Its sales rose 79 per cent increase in 2002 to €20.5 million, and the Internet business now accounts for 1 per cent of Caprabo's total turnover.

Top 10 UK Grocery & Alcohol sites, week ending 21/2/04

Source: www.hitwise.co.uk

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