Tesco deals blow to Ocado with 'dark stores' plan

Tesco is to turn the screws on the online grocer Ocado by rolling out scores of "dark stores" for its internet operation.

The supermarket chain already has four of these dot.com-only stores – which do not open their doors to the public but are used to fulfil online grocery orders – and will open a fifth in Crawley, Sussex, early next year. Tesco also plans to introduce a further site in Erith, Greater London, in 18 months' time.

Ken Towle, Tesco's director of internet retailing, said it will seek to open "tens but not hundreds" of dot.com-only stores, as it seeks to keep up with rapidly growing demand for groceries ordered online in "dense urban areas".

Mr Towle, who has been at the grocer since 1985 and was previously chief executive of Tesco China, also raised the prospect of it opening dark stores beyond the South-east, around Manchester and Birmingham. He said: "We can see demand at least doubling [for online grocery at Tesco]."

His comments are significant for Ocado, which has never made a pre-tax profit in 10 years, as Tesco has nearly 50 per cent of the online grocery market.

Tesco's chief executive, Philip Clarke, also yesterday provided an update on the progress of its £1bn investment to turn around the performance of its stuttering UK business. He unveiled a plethora of changes, such as an improved layout and revamped bakery, at its Bishop's Stortford store in Hertfordshire, but Mr Clarke admitted: "We have only just begun, we have a long way to go."

Online accounted for 3.8 per cent of total grocery spend in 2011, and is forecast to rise to 6 per cent by 2016, according to the trade body IGD.

Ocado, which has 14 per cent of the online grocery market, said: "If more customers start shopping online, history has shown that this represents an opportunity for Ocado."