Tesco targets US online market

Leahy: Into the lion's den of internet retailing

Tesco, the UK's biggest grocer, has announced plans to start online retailing in the United States.

The project will be carried out with US supermarket chain Safeway.

"With Tesco's know-how and the Safeway brand we have the perfect combination to bring grocery home shopping to the world's largest market," said Tesco chief executive Terry Leahy.

Tesco's home shopping division is viewed as one of the UK's most successful e-tailing operations. It has almost 1 million registered customers, annualised sales of about £300m and is profitable.

In profit next year?

Under the US deal, Tesco is paying $22m (£16m) for a 35% stake in GroceryWorks - Safeway's existing online operation.

Mr Leahy said he expected GroceryWorks to make a profit by the end of next year.

Safeway has 1,750 stores throughout the US and western Canada and annual sales of about £23bn - the same as Tesco's total sales.

It has no connection with Tesco's UK rival of the same name.

Safeway chief financial officer Vasant Prabhu said the company aimed to become the US's biggest online grocer.

The US has the largest market for online shopping in the world. But the market for grocery home shopping is currently smaller than in the UK.

Store not warehouse

Tesco and Safeway said GroceryWorks would suspend operations on Tuesday before reopening under the Safeway banner, with deliveries coming from Safeway stores.

Mr Leahy said the single most important factor behind Tesco.com's success was its decision to source deliveries from existing stores rather than build expensive warehouses.

Tesco says a warehouse needs 10,000 orders a week to be viable.

Tesco.com executes 70,000 orders a week from 240 UK stores.

Tesco shares were half a penny higher in early trade at 264.5 pence.