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Food retailer and e-grocer Tesco is to bring its home shopping model to the US following its investment in on-line retailer GroceryWorks.
Tesco, which recently announced an IEP1.5 million investment in its Irish Internet shopping service and claims to have 25,000 customers of its Tesco.ie site, is to pay USD22 million, as well as intellectual property and technical resources, for a 35 percent stake in GroceryWorks, the on-line outlet of US group Safeway.
According to Tesco and Safeway, the deal will see GroceryWorks benefit from Tesco's experience in developing and running an Internet-based grocery service. The deal will also give the UK retailer a foothold in the US market. Safeway, which owns 50 percent of GroceryWorks, has 150 million customers in the US.
According to Tesco, the US grocery market offers major opportunities. Although the US is the largest market for e-commerce in the world, the market for grocery home shopping in America is currently smaller that in the UK. However, a recent Andersen Consulting report estimated that by 2007, 15 million to 20 million American households will order groceries on-line for home delivery.
"Up until now, most of the e-grocers were warehouse operations, which are not ideal from a service point of view because of their geographic distance from consumers and their limited product ranges," said Tesco's marketing and e-commerce director, Tim Mason. "But, we have a different approach and we certainly believe that there is a strong desire among Americans to buy their groceries over the Net."
GroceryWorks will suspend operations on Tuesday, 26 June. It is expected to go live again within six months and when it does the on-line grocery business will operate under the local Safeway banner, with a new Web site and deliveries coming from stores, not from warehouses. Tesco said it expects GroceryWorks to be in profit by 2003.
Internet grocers in the US have been suffering recently. Although Peapod is rated as the number two on-line retailer in the sector with revenues last year of USD92.8 million, it was recently forced to close its San Fransciso operation. Webvan, the leader in the market, had sales of USD259.7 million in 2000.
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