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Tesco: “Online service is still good”
Tesco will not have taken the decision lightly as unpopular measures are even harder to take if you are already being pummeled. In any case, customers have reacted furiously to the new measure, because now they will have to pay an additional 4 pounds if their online order doesn’t reach 40 pounds in total. This drastic step goes to show how difficult it is to create a profitable online operation.
“We are changing the minimum size of the online order to 40 pounds. Customers can still benefit from a series of discounts, including our Delivery Saver program, delivery periods of 1 hour for 1 pound and our free Click & Collect pick-up service”, Tesco said in a general statement. The company refuses to comment any further on the matter.
Spokesperson Francis basically gave the same explanation when he was asked whether Tesco had to take this unpopular measure in order to maintain the online branch’s profitability: “We are continuing our decent and attractive online shopping service, including Delivery Saver, one-hour delivery periods for 1 pound and free Click & Collect”, he said. “We think this is a balanced offer for our customers.”
Volume is required online
British retailer John Lewis‘ managing director, Andy Street, was far more candid about this situation earlier this month. The Waitrose affiliate decided to charge 2 pounds for all online orders below 30 pounds (42 euro), ready for pick up in any John Street department store or Waitrose supermarket. He says “illogical” business models cannot be sustained: “This market has got to become more sustainable. We think our customers will understand this is reasonable”, he told the British press.
Tesco’s flawed communication about the topic says it all: when it comes to food, an online branch needs a lot of volume to become profitable and while Tesco won’t admit it, this was a big part of their decision. There is already a charge for home delivery, but volume is required if any company wishes to keep a series of pick-up points active, despite the fact that the customer takes care of the most expensive final yards.
Not only does an online branch require a lot of volume, it also needs predictability, which is why Tesco hopes to convince as many people as possible to join its Delivery Saver program. Customers have to pay in advance in order to get lower fees for an unlimited amount of home deliveries for the entire subscription period. A Tesco spokesperson said the service already attracted 300,000 customers, but from 23 July those customers will also be forced to spend more online in order to get value out of the deal.
