Tesco: Who says it's hard to make home delivery profits?

Tesco has piled the pressure on its rivals to state whether they make any money from their online operations after the UK's biggest supermarket said its groceries home delivery business made a massive £127m profit last year.

The revelation came as its chief executive admitted Tesco must adapt to compete with discounters Aldi and Lidl, with both outperforming the traditional Big Four of Tesco, Asda, Sainsbury's and Morrisons at Christmas.

Philip Clarke also said £200m will be spent on price cuts, the slowdown in store openings will accelerate and focus on hitting its 5.2 per cent profit margin has come to an end.

The new strategy for the company, which was laid out at the London Stock Exchange yesterday, comes after Tesco has struggled in recent years to get to grips with its spending and improve the UK business which became overlooked in aggressive overseas expansion in the last decade.

But the revelation that its online groceries business is turning such a large profit will shock competitors and analysts who have said that home deliveries are notoriously loss making.

Sainsbury's and Asda have both refused to give figures on online profit while online-only rival Ocado has yet to make a profit.

Tesco added that it plans to double the number of click and collect grocery sites at stores, train stations and transport hubs to around 500, and plans to offer non-food home deliveries in one-hour slots.

Management also revealed that despite overall like-for-like sales falling 2.3 per cent online groceries sales were up 10 per cent last year and accounted for 8 per cent of food sales at Christmas. It was dragged down by a 3.1 per cent fall at large stores.

The falls at larger stores will see the company speed up refurbishments at its 247 hypermarkets, which will see the estate updated by 2017.

Focus will also be made on changing smaller stores, making them more relevant to local areas with 450 convenience stores updated each year. A further 150 convenience stores will also be opened each year.

The acceleration is set to come at the cost of large store openings which will slow from 1.4m sq ft of new space opened this year to just 700,000 sq ft open next year.

Mr Clarke also said capital spending on new stores, technology and existing stores will fall to £2.5bn next year for three years – a 10-year low – after admitting the high spending in 2008 was because management believed the recession would only last two years.

The price investment has puzzled some analysts who pointed out that a similar £500m investment in the "Big Price Drop" in 2011 failed.

Mr Clarke admitted: "We did launch the big price drop and everybody know it wasn't executed particularly well.

"We said the low prices would stay and they didn't but the prices are going to stay there and this time they will. We are going to do what we said."

Start your day with The Independent, sign up for daily news emails
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Sport
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture