Tesco bids for a virtual supermarket sweep

The supermarket giant already dominates Britain's grocery market, and has signalled its intention to do the same online. James Thompson looks at its prospects

Tesco has turned the screws on the online grocer Ocado by opening a huge delivery facility in north London, as it closes in on grabbing half of the market for food on the internet. The 115,000 square foot facility in Enfield is not only Tesco's fourth so-called "dark store", but is also its most automated to date, which enables staff to pick twice as many products an hour as the existing three virtual stores.

Ken Towle, Tesco's director of internet retailing, said the retail giant now has 48 per cent of the UK online grocery market, based on Kantar Worldpanel data, and it expects overall demand to double over the next five years.

Its huge market share lays bare the challenges faced by rivals including the second-biggest player Asda, Sainsbury's and particularly Ocado, the Hertfordshire-based specialist that delivers the bulk of its revenues inside the M25. Ocado, which floated at 180p in July 2010, has never made a profit in more than 10 years.

Clive Black, an analyst at Shore Capital, said: "Tesco is not going away and is seeking to get better at online grocery and that is constraining for Ocado. Sainsbury's and Asda are also growing faster online than Ocado, and Waitrose is now delivering within the M25. We believe that Ocado is largely Waitrose on wheels."

He added: "What Tesco is doing in London is taking much more of the market in areas where it can deliver from these dark stores, which have demonstrably lower capital expenditure deployed than Ocado."

Tesco has invested up to £30m in the Enfield facility, which is roughly in line with a big store development. Its core, online grocery model remains picking in nearly 300 stores, and its first dot.com-only store did not open until 2006 in Croydon, south London.

The latest site in Enfield provides a much higher level of automation, with conveyor belts dispatching trays to pickers, who have handheld devices strapped to their arms, to fulfil orders from 178 stations. In the other dark stores, pickers move around with a trolley.

Another difference is that the Enfield facility delivers all of Tesco's 26,000 groceries, as well as a full range of prepared foods, such as sliced cheese and meat, from its deli counters.

The site's biggest vans, which run on compressed gas, are also able to hold enough orders to remain on the road for an entire shift, as opposed to returning to collect additional orders during the day.

Overall, the Enfield site demonstrates the importance of online to Tesco, which issued its first profit warning in 20 years last month and suffered a 2.3 per cent fall in UK underlying sales over Christmas. This contributed to its share of the physical grocery market falling to 29.9 per cent recently.

But there are no such problems online. Tesco's UK online grocery operation delivered "high single-digit" growth over the six months to 27 August.

Mr Towle admitted the new Enfield facility, which has more than three kilometres of conveyor belts and processes 12,000 food baskets a day, is in Ocado's "heartland".

But he said Tesco had launched the London site and its three other virtual stores in Croydon, Aylesford, Kent, and Greenford, Middlesex, to meet soaring demand in densely populated areas.

Mr Towle said: "As demand rises in urban areas, there will be the opportunity to deliver these type of sites."

The grocer plans to open a fifth such facility in Crawley early next year.

Mr Towle declined to say when Tesco would hit a 50 per cent share of the online grocery market, but said "mathematically" it will happen. "We have got a very strong position in online food market share and we have been pleased to see that, despite the fact we have got the biggest and most mature [operation], we are effectively growing in-line with the market."

Ocado's market share is believed to be about 14 per cent or 3.5 times smaller than Tesco's. An Ocado spokesman said: "As the online market gets bigger, we don't expect to get smaller."

The internet accounted for 3.8 per cent of total grocery spend last year and is forecast to rise to 6 per cent by 2016, according to statistics from the trade body IGD.

Mr Towle said: "We are working on the basis that demand will roughly double over about five years."

A key driver of this demand will be ordering food on smartphones, with people increasingly using such devices to top up their baskets, says Tesco.

Mr Towle said: "One of the big phenomenon of the last year has been the number of orders that have been placed by mobile phones."

Less well-known is that the dark stores, such as the one at Enfield, also help to increase sales in the big stores in surrounding areas, as customers prefer less staff picking in the aisles.

"There is an appreciable improvement in the business stores from where we remove dot.com," said Mr Towle.

With this sort of flexibility and its near-50 per cent share of the market, it's easy to see why in the long term online grocery is more likely to be dominated by Tesco than Ocado.

News
Patrick Stewart in the classiest ice bucket to date
peopleSir Patrick took a more understated approach to the challenge
News
The current recommendation from Britain's Chief Medical Officer, is that people refrain from drinking on at least two days a week
scienceTheory is that hangovers are caused by methanol poisoning
Arts and Entertainment
tvWe have created an infogaphic that looks back over the previous incarnations of the Doctor
Sport
Olivier Giroud celebrates after his late goal saved Arsenal a point at Goodison Park
football Giroud rescues a point for Arsenal after they trailed by two goals
PROMOTED VIDEO
News
i100
News
newsComedian Lee Hurst started trend with first tweet using the hashtag
News
i100
News
Australian rapper Iggy Azalea was left red faced but, thankfully, unhurt after taking a few too many steps backwards, sending her tumbling off the stage.
people
Life and Style
A nearly completed RoboThespian robot inside the Engineered Arts workshop is tested in Penryn, England. The Cornish company, operating from an industrial unit near Falmouth, is the world's only maker of commercially available life sized humanoid robots
techSuper-intelligent robots could decide destroying the human race is the kindest thing to do
Life and Style
techConcept would see planes coated in layer of micro-sensors and able to sense wear and tear
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
News
newsRyan Crighton goes in search of the capo dei capi
Life and Style
Customers can get their caffeine fix on the move
food + drink
News
i100
Extras
indybest

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Software Developer (Java /C# Programmer)- London

£30000 - £45000 per annum: Harrington Starr: A global investment management fi...

Senior Network Engineer-(CCIE, CCNP, Cisco, London)

£65000 - £75000 per annum: Harrington Starr: Senior Network Engineer-(CCIE, CC...

Senior Network Analyst - (CCIE, Cisco, CISSP)

£70000 - £80000 per annum: Harrington Starr: Senior Network Analyst - (CCIE, C...

Senior Network Engineer-(Design, Implementation, CCIE)

£60000 - £80000 per annum: Harrington Starr: Senior Network Engineer-(Design, ...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition