Waitrose turns screws on Ocado with virtual store

Waitrose is taking the fight to Ocado, the online grocer, by opening a massive "virtual shop" in west London this October to ramp up the delivery of orders from its website in the capital.

Waitrose staff, rather than customers, will walk the aisles of the store in Acton, picking groceries to fill internet orders, and the supermarket expects it will enable a huge uplift in weekly orders.

Waitrose, which is part of the John Lewis Partnership, will use the JLP warehouse to capitalise on a clause in its contract with Ocado that enables it to deliver from any of its shops inside the M25 from July.

This was a key part of a new 10-year supply agreement signed by the two companies last May which enabled Ocado to continue delivering Waitrose groceries.

Mark Price, the managing director of Waitrose, said: "This is a significant step in the development of our multi-channel offer, and will play an important role in the continued growth of our e-commerce sales over the next decade."

The dot.com-only store in Acton is 100,000 sq ft, which dwarfs Waitrose's biggest physical shop, a 70,000 sq ft store in Canary Wharf, London.

Waitrose – which currently picks online orders in its shops – said the virtual store offers "significant advantages over the existing model for the unique London market: a much greater volume of orders can be picked at a time". The 252-store grocer's online shoppers will also be offered a much wider range of delivery slots "as late as 11pm". The supermarket said the virtual store would create 350 new jobs. Mr Price added: "The density of population and rapid growth of online shopping in London calls for an additional approach to e-commerce to ensure that we offer our customers the same standards of service that they've come to expect from our branches."

He is bullish about Waitrose's online prospects. Earlier this year, Mr Price said: "For the foreseeable future, I'd expect to be growing at 40 per cent, 50 per cent, 60 per cent a year."

While Waitrose has operated its home-delivery service from five shops in the London region since 2008, it has added more than 10 recently, ahead of the change in its contract with Ocado from July.

The JLP-owned grocer currently has 70 stores inside the M25. The opening of Waitrose's virtual shop will be a blow to Ocado, which still generates the bulk of its sales from inside the M25.

The online grocer, which operates from a hi-tech warehouse in Hatfield, Hertfordshire, made its maiden profit in the quarter to the end of November. Ocado floated at 180p in July 2010. Shares in Ocado, which is expected to make its first annual profit this year, have been on a roller-coaster ride since it floated, but they closed up 3.22 per cent at 237p yesterday. The so-called dark store is the latest salvo fired by Waitrose, as it seeks to make up ground in the fast-growing online grocery market.

The grocer this year relaunched its Waitrose Deliver website after a £10m investment, although the site initially suffered a few glitches that led to customers' complaints.

Tesco and Asda use both a pick-in-store model and dot.com-only stores. Tesco has opened three dark stores while Asda has two. For the 12 weeks to 20 February, Ocado delivered a 24.7 per cent rise in sales to £146.2m, boosted by new customers and its existing ones shopping more frequently.

Ocado said: "We are delighted to see Waitrose is expanding its presence generally across the UK. In areas where both Ocado and Waitrose operate together, both brands grow faster and more customers are introduced to the Ocado and Waitrose brands."