U.K. grocer takes Safeway to the Net

Will Tesco crack the U.S. grocery market, or will its "store pick" model be unable to impress American shoppers?

Having become one of the United Kingdom's e-commerce success stories, supermarket chain Tesco will launch its first U.S.-based online shopping service Monday.

Tesco.com has created a Web site for the U.S. Safeway supermarket chain, which, according to reports, looks almost identical to Tesco's U.K Web site. The project will kick off at five Safeway stores in Portland, Ore., on Monday, and is expected to debut across the Safeway chain in the coming months.

U.S. grocery giant Safeway teamed up with Tesco last summer, in a deal that saw Tesco pay $23.2 million (16 million pounds) in exchange for a 35 percent stake in Safeway's existing home shopping operations, called GroceryWorks.

Tesco is hoping that its business model will prove successful in the United States, which has already seen the high-profile collapse of Webvan--a dot-com retailer that spent more than $1.15 billion in a failed attempt to succeed in the highly competitive grocery market.

Tesco's business model is radically different than Webvan's was, and is based on the idea of using a company's existing infrastructure to serve Internet customers. Rather than building new warehouses, Tesco operates a "store pick" system in Britain, where orders submitted over the Internet are assembled at the nearest local store. Safeway.com will now use this model.

Webvan put its faith in high-tech infrastructure, creating an immense warehouse in California that was reported to cover 330,000 square feet and contain five miles of conveyor belts. The company believed that its workers would be up to 10 times more productive than traditional shoppers, ensuring significant productivity gains.

However, the move didn't pay off and, in July 2001, Webvan filed for bankruptcy.

In contrast, Tesco's Internet arm has clicked with British Internet shoppers. It announced recently that its online arm would become profitable earlier than expected, after it enjoyed solid sales growth in 2001.

Some analysts have warned, though, that the "store pick" model may not be as popular with American shoppers.

Graeme Wearden reported from London.


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