Tesco takes Safeway into online shopping

Will Tesco crack the US grocery market, or will its 'store pick' model fail to impress American shoppers?
Written by Graeme Wearden, Contributor

Having become one of the UK's e-commerce success stories, supermarket chain Tesco will launch its first US-based online shopping service on Monday.

Staff from Tesco.com have created a Web site for the US Safeway supermarket chain, which, according to reports, looks almost identical to Tesco's UK Web site. The project will kick off at five Safeway stores in Portland, Oregon on Monday, and is expected to roll out across the Safeway chain in the coming months.

American grocery giant Safeway teamed up with Tesco last summer, in a deal that saw Tesco pay £16m 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 US, which has already seen the high-profile collapse of Webvan -- a dot-com retailer that spent more than £800m in a failed attempt to succeed in the highly competitive grocery market.

Tesco's business model is radically different than Webvan's was, though, 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 Net 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 Californian warehouse that was reported to cover 330,000 square feet and contain five miles of conveyor belts and £2m of electrical wiring. 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.

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