Tesco bags two-thirds of online grocery market

Tesco’s record £1.15bn half-year profit announcement yesterday masks even faster growth by its online grocery business.

Tesco’s record £1.15bn half-year profit announcement yesterday masks even faster growth by its online grocery business.

The supermarket giant posted half-year results showing a 12.5% increase in underlying profits, to £1.15bn. Sales figures across the group rose 12.7%, with £20.7bn revenues for the half-year.

But the Tesco.com online food store saw sales rise by 28.7%, with profits – before the start-up costs associated with the new Tesco Direct non-food service – soaring 43.1% over the same period.

Total Tesco.com sales of groceries and wine reached £554m, with profits of £33.8m. The online store now has around 750,000 regular users and is receiving close to 220,000 orders a week.

Figures released last month by analyst comScore Networks revealed that Tesco was picking up two-thirds of all online grocery orders in the UK, well ahead of nearest rival Asda, with 16% of orders.

The half-year results came just weeks after the delayed launch of the Tesco Direct non-food web ordering service, which was held up by IT problems believed to have been linked to the company’s web infrastructure.

But Tesco said response to the new service had been “very positive” with more than a million hits on the website in its first three weeks.

Richard Hyman, managing director of analyst firm Verdict Consulting, described the Tesco.com results as “very strong”. He added; “It means their online sales are already more than £1bn on an annualised basis and profitability is growing very well.”

Although the online sales figure was “piddling” in comparison to Tesco’s total revenues, Hyman said, “It’s very important and it’s growing fast. This represents the kind of business opportunity that given Tesco’s strengths is relatively low-risk and relatively inexpensive to pursue.”

In some ways it was unfair to judge the value of the online business against the overall group profit figures, he suggested. “Most people would give their right arm to get £34m of profit in six months of internet trading.”

A Tesco spokesman said: “It’s early days for Tesco.com, but we believe it will become an increasingly important part of the business. We’re the UK’s number-one online retailer and this is partly due to the fact that we’ve made the technology match our needs rather than the other way round.”

Tesco’s announcement of its half-year results also noted that new checkout technology had boosted supply chain efficiency. The spokesman said part of the company’s step change improvement plan had focused on IT.

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