Sainsbury's Becomes Second Grocer To Reach £1 billion Online Food Deliveries.... But Tesco Increases Its Lead

The battle for the online grocery customer heated up this week after Sainsbury's said it had reached £1 billion in sales in the past year.

Reaching the target means that Sainsbury's, which overtook Asda by market share in the food delivery business last year, has become only the second grocer to do so.

Sainsbury's revealed the milestone as it announced that online grocery sales rose 15 per cent in the 16 weeks to September 28, according to a statement released to the City.

But it appears to be falling behind its larger rival. Online food sales at Tesco.com increased by nearly 13 per cent in the 26 weeks to August 24, which means, due to the relative size of its delivery business compared to rivals, it has increased it market share by almost three times Sainsbury's and Asda over the same period.

Tesco, with an estimated £3 billion in online food sales, said it has signed up 40,000 customers to one of its Delivery Saver subscription schemes in the past six months. It charges from £7.50 a month in return for free deliveries. Asda said earlier this week that it had launched a cheaper offer.

Tesco said it also introduced Click & Collect drive through collection points to nearly 200 stores by the end of the period and will open its sixth 'dotcom' delivery warehouse in Erith, East London later this month.

'Our Erith facility will build on the learnings from our openings to date, with an increased level of automation and, as a result, a greater capacity in terms of the volume and number of orders,' the company said in the statement.

Tesco primarily uses in-store picking by staff to prepare deliveries but it has increasingly expanded its capabilities through the use of dotcom-only 'dark stores'. Asda and Waitrose have pursued similar strategies. However, according to analysis by the grocery industry body, the IGD, Sainsbury's is committed to in-store picking 'seeing cost benefits though not having to invest in dedicated dark stores'.

In 2012, according to research by Mintel: Tesco had 37.1 per cent last of the market in 2012; Sainsbury's 17.4 per cent; Asda 17.2 per cent; Ocado 12 per cent; and Waitrose 3.9 per cent. Other suppliers and retailers - such as wine merchants, dairy deliveries and Christmas hamper sales - make up 12.3 per cent.

Frozen food chain Iceland entered the market this year and Morrisons is expected to test its online delivery service before Christmas with a full launch in January. The Co-operative Group said recently that it also plans to begin a delivery service and Amazon is also understood to be considering a service in Europe, most likely using the UK as a beachhead.

The grocery industry body, the IGD, expects supermarket online food deliveries to double from £5.6 million last year to £11.1 billion in 2017.

Meanwhile, Tesco Direct, the non-food division of the online operation, remains a 'key part' of the multichannel strategy. The offer has been edited in line with the in-store product ranges and the supermarket said the profitability of the operation has 'improved'. It is not clear, if any, how much money the non-food operation makes and it has historically been unprofitable.

Last week it launched its own tablet computer, the Hudl, which it hopes will support its digital and online plans.