Tesco.com - A Rare Profitable Dotcom
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Case Details:
Case Code : ITSY025
Case Length : 14 Pages
Period : 1990-2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Tesco plc
Retail ing
Countries : UK
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"Tesco's success story goes way beyond the grocery
niche to be a virtual blueprint for how to use the Internet to make money."
- As quoted in an E-Commerce Times article,
dated June 22, 2001.
"We have been a bit lucky, but we have also been
right."1
- John Browett, CEO, Tesco.com, commenting on the
website's success, in October 2001.
Getting it Right
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For the financial year 2002-03, Tesco.com, the online selling
outfit of the United Kingdom (UK) based retailing major Tesco plc (Tesco),
posted a profit of £12.2 million on sales of £447 million2. This was one of the
very rare cases of a dotcom anywhere in the world generating profits. Analysts
termed the company's performance quite impressive considering that the profit
had increased over 30 times as compared to the previous year's figure
(£400,000). As against Tesco's net profit for 2002-03, (£1.36 billion),
Tesco.com's profits were minuscule indeed. However, given that numerous other
dotcoms had failed since the late 1990s, the company's achievements were
considered to be noteworthy by many industry observers. |
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Another major reason why Tesco.com's success was attracting attention was that
it had proved that the concept of online grocery selling was not an unviable
business proposition (After the US-based online grocery vendor Webvan filed
for bankruptcy in July 2001, the business concept itself had been eyed with
suspicion by analysts as well as companies). Thus, the company's entry in
the United States (US) online grocery retailing industry in 2001 had
attracted a lot of attention (it entered into a joint venture agreement with
the US-based retailer, Safeway and picked up a 35% stake in Safeway's online
venture GroceryWorks).
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Tesco.com, which became operational in the mid-1990s,
was expanding globally in a major way in early 21st century. By 2002,
besides the US, it was offering services in Ireland and South Korea as
well. Many were skeptical of these moves, stating that the UK market was
very different from the rest of the world and that Tesco.com risked
failure in its overseas operations. The company meanwhile continued to
put in place its unique model of running the online grocery retailing
venture that was rapidly gaining appreciation from strategists. The
healthy financial statistics reported in early-2003 only supported what
David V McCarthy, a retail analyst of Schroder Salomon Smith Barney had
earlier said about Tesco.com, "They were the only company in the world
to really get it."3 |
Tesco.com - A Rare Profitable Dotcom
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1]
'Q&A with Tesco.com's John Browett,' BusinessWeek, October 01, 2001.
2] Exchange rate as on July 31, 2003: 1.61 US $
= 1 UK £.
3] Tesco Bets Small – and Wins Big,'
BusinessWeek, October 01, 2001.
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