Tesco, the UK’s leading supermarket group, has ruffled a few feathers in the online retail sector by claiming that high street players will out-compete dot.coms in the fight for share of (virtual) trolley. The group speaks from a strong vantage point, as its online operation, Tesco.com, is among the largest and most successful e-commerce ventures in the UK, and seem to have suffered few of the indignities borne by many of its competitors.
John Browett, CEO of Tesco.com, predict that the gap between the online operations of established bricks and mortar supermarkets and independent newcomers to the sector will continue to widen. Existing brand loyalty together with an established distribution infrastructure would ease the path of the high street group, he said, adding that Tesco had despatched more than thirty million items in the run-up to Christmas.
However, judging by the experience of Somerfield’s 24/7 online shopping venture, not all high street players will find the going so easy. The group pulled the plug on 24/7 after just a few months, and was forced to write down £11m in assets as a consequence. These high costs were partly incurred by Somerfield’s decision to set up dedicated picking warehouses, while Tesco relies largely on store picking. Long-term the warehouse method will prove more efficient for all online grocers, but conversion costs are high and Tesco has preferred to proceed with caution. Costs per sale may be slightly higher but Tesco and other retailers using the store-picking method have not had to swallow such high startup costs to.
Meanwhile, a spokesperson for the UK division of online book retailer Amazon.com questioned the basis of Tesco’s sales figures: “What are all those [thirty million] items? We do not know if it is just eggs.”
These statements and protestations aside, it is too simplistic and too soon for clicks and mortar or purely Net-based operators to claim victory for their modus operandi. Sound business plans and revenue models are the key, and the winners will be the players that run a tight operation, whatever their heritage.