Analysis of Tesco from a company perspective Essay
The Institute of Grocery Distribution (IGD) has estimated that the UK grocery market is worth 100 billion p.a. and that 1% of this total represents sales on the Internet. In trade research by Iceland, it is revealed that 3% of the population- such as ‘cash-rich, time-poor’ young professionals, dislike shopping in supermarkets and if they were presented with an efficient alternative they would switch immediately. Therefore, the e-retailers are targeting demographics in their pursuit of increased market share.
The drivers of online grocery shopping are seen as changes in working and eating patterns, smaller households and a wider acceptance of new technology. Tesco is now recognised as the worlds leading online grocery retailer. It is said to have moved into profit in 2001, with sales in excess of 200 million and a registered customer base of 1 million, up from 500,000 in 2000. In September 2000 it was fulfilling 60,000 orders per week (up from only 1,000 at the end of 1997). Revenues were predicted at 6 million per week or 237 million p.a. in April 2001 (Vickers, 2001). According to research by Datamonitor in 2002, British grocery shoppers spent 395 million online last year- with more than half of that ending up
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From research studies into customer buying habits, it is clear that online shoppers on average spend more on goods than they would if they visited the store, largely because they do not have to transport the products home. The average Tesco.com order is 5 for the delivery. The challenge for a Web store is not only to engage the shopper, but to deliver an experience and actually achieve e-fulfilment by the merchant” (Janoff, 2001).
In an interview with chief operating officer, Carolyn Bradley, she said that 30% of Tesco.com customers do not shop anywhere else, whilst purchases of own-label products were higher online than instore. In another sign of customer loyalty, she added that users make more than 20 trips per year and 90% of customers have recommended the service to their friends (Hemsley, 2000). In a revealing statement, she said that “The tesco.com strategy is to dominate UK grocery home shopping, while for non-food items we are creating a store without walls. As with all retailing quality, value and brand trust are critical. We must continue to improve the online experience and develop the relationship we have with our customers” (Hemsley, 2000).
The company seem to have created a “customer magnet” whereby stores that establish their service quickly on the web can quickly become the dominant player by fast growth and encouraging customer loyalty to their site. In Internet retailing it is perfectly possible for a small number of companies to meet the diverse needs of large segments of a global market (Ghosh, 1998). Tesco.com has distinguished itself from its rival online grocery sites by rejecting the use of huge warehouses and following the old family grocers role by simply employing extra staff to pick goods of the shelves of existing stores. By using this method which was scorned by all of its rivals, it has avoided the additional cost of setting up parallel operations and premises for its online business.
Ghosh, S. “Making Business Sense of the Internet”, HARVARD Business Review, March- April 1998, V76 n2 p 126 Gibson, O. “Tesco to profit online”, The Guardian, 18/12/01. Janoff, B. “Thick as a brick”, Progressive Grocer, 2001 (May), v 80, p.87 Hemsley, S. “Shall I carry that to your door, Madam?” , Precision Marketing, Nov 2000, V13 I8 p17