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A page from the Tesco website is displayed for a photograph on an iPad.
When Nikki Dye tired of supermarket queues, she tried having her groceries delivered, but that meant committing to being at home for a two-hour delivery window. Now, she’s switched to a service where she can order online and then collect her groceries from a local store.
By yearend, Tesco expects to complete collection points in 150 stores as part of a 1 billion-pound ($1.6 billion) initiative to revive domestic sales. Photographer: Simon Dawson/Bloomberg
“It’s so quick,” the 25-year-old working mother said as Tesco Plc (TSCO) staff at the store in the southern English town of Harlow loaded her car trunk with goods costing 80 pounds ($127).
With same-store sales falling, Tesco is betting it can get a lift from shoppers like Dye by tripling the number of outlets offering what it calls click and collect. The chain’s leading share of the U.K. grocery market shrunk to a seven-year low this year as more Britons chose upscale competitors such as Waitrose Ltd. or discounters like Iceland Foods Ltd. and Aldi.
By yearend, Tesco expects to complete collection points in 150 stores as part of a 1 billion-pound ($1.6 billion) initiative to revive domestic sales. The grocer is also hiring 20,000 staff, updating its house brand products, refreshing stores and adding more personalized promotions.
Bryan Roberts, an analyst at Kantar Retail in London, said click and collect will give shoppers a reason to choose Tesco over its competitors. Among the top four grocers in the U.K., onlyWal-Mart Stores Inc.’s Asda, (WMT) the No. 2 chain, has a similar service for groceries, and it’s just in a trial stage. The service also helps Tesco stand out from online retailers.
‘Ahead of the Pack’
“It’s going to be a key growth opportunity,” Roberts said. “The economics are much superior to home delivery,” which requires grocers to operate a fleet of vans and drivers.
Tesco, based in Cheshunt, England, expects that making shopping easier will convince customers to come back more often. Deloitte LLP estimates that people who shop via different methods -- the Internet, smart phones and visits to the supermarket -- spend more than double those who only shop at physical stores.
Click and collect “is gaining traction, and Tesco is ahead of the pack,” said Clive Black, an analyst at Shore Capital who recommends holding the stock. “While it’s a very modest part of supermarket activity it is one that’s expected to grow.”
Web sales, which accounted for 3.4 percent of U.K. grocery spending last year, are set to almost double over the next five years, according to the Institute of Grocery Distribution.
Tesco’s domestic sales have declined for the last four quarters, with U.K. same-store revenue falling 1.5 percent in the 13 weeks ended May 26. That has left Chief Executive Officer Philip Clarke to seek new avenues for growth. Expanding click & collect, which started from a store in southern England two years ago, forms a part of his plan.
The service relies on its simplicity and convenience, said Ken Towle, Tesco’s director of Internet retailing. For a 2-pound fee, a shopper’s groceries are picked, packed and stored at the drive-through point. When the customer arrives, a staffer loads the groceries into the trunk.
“What customers like is they are in control,” Towle said. “They choose when they want it to be available. It de-stresses the whole experience for them.”
The expansion has come at a cost. Tesco has had to train staff in customer service and product returns, Towle said. And adding the collection points to stores has cut the floorspace available to sell products.
A big challenge is linking up online orders with picking and packing the groceries in the chosen time-slot from the store, according to Chris Gates, director of retail at Hitachi Consulting, a technology adviser that has worked with Tesco. Another issue is ensuring stores can handle returns and have enough supplies to account for both online and physical buyers.
“Whilst companies realize it’s the way customers want to shop, it takes a lot of investment to make it happen,” Gates said. Retailers, he said, typically see a return on their investment in two years.
Asda says it has had trouble getting planning permission to set-up drive-through collection points. The company started testing a 1.50-pound-per-order click & collect for groceries this year and has about 10 outlets. Stores with the service get about 60 to 100 orders a week almost immediately, said Jon Wragg, director of Asda’s multi-channel strategy.
The retailer has trialed low-cost alternatives like a simple shelter in a carpark with a van that customers collect from, to a formal drive-through attached to the store.
“It’s all the understanding and refining of the experience for customers that I think is going to be tough,” Wragg said.
France may offer some insight into the concept’s potential. While British grocers have focused on home delivery of online orders, French companies have embraced drive-throughs instead.
Groupe Auchan SA has had drive-in collection since 2000, and Le Clerc, Casino Guichard-Perrachon SA (CO) and Carrefour SA (CA) also now offer the service. Planet Retail estimates there were about 1,000 drive-through points in France in May. Le Clerc expects about 5 percent of its sales to come from the drive-through format by 2015, up from 1.4 percent in 2011.
Planet Retail analyst Malcolm Pinkerton estimates that Tesco will generate about 6.4 percent of its overall U.K. sales from online orders this year, which will surge to 9.3 percent, or 5.9 billion pounds, by 2017 as click & collect is extended.
“Anybody that’s in retail who is not multi-channel would want to think quickly about having a strategy,” said Colin Jeffrey, director of retail research at Deloitte Digital. Click and collect is “a must, but it’s a massive challenge.”