Tesco.com - A Rare Profitable Dotcom|IT and Systems|Case Study|Case Studies

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

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).

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

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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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