Tesco prepares to reintroduce the delivery boy

For years, customers have packed their groceries themselves. Now some stores are considering going full circle

Tesco is set to announce an expansion of its home delivery operation in the next few weeks in a move which will bring the concept of electronic shopping and the virtual store one step closer.

Tesco Direct offers customers the choice of placing grocery orders via the telephone, fax, or through the Internet. The orders are then delivered to their homes for a charge of pounds 5.

The service is already operating in five areas, including Osterley in West London, Leeds and Sutton, Surrey. It is thought that Tesco is finalising plans to develop the service further though the supermarket group yesterday declined to give further details ahead of its results next week.

Tesco's move is one of several home delivery initiatives being aggressively rolled out. Iceland last week announced plans to offer its home delivery service nationwide backed by a fleet of 850 vans. Burton, the fashion retailer, started selling its Evans brand via the Internet at the weekend. Its other formats, including Dorothy Perkins, Debenhams, Principles and Racing Green, will start trading electronically over the next two months.

Analysts are divided on the significance of these developments. Andersen Consulting estimates that up to 20 per cent of supermarket shopping could be conducted via non-store electronic channels by 2000. But Clive Vaughan of Verdict Research is more sceptical: "I think there is a genuine desire among retailers to check out these new channels. But I don't believe they will go mass market without companies investing sizeable sums in them. Are they really going to do that and jeopardise their store portfolio? I think the idea is that they want to control it and keep what little business there is in their own hands."

Of the major supermarkets Tesco is already the most advanced in home delivery. It has been running Tesco Direct for nearly a year with an electronic store that offers 20,000 lines. Half of its customers order by phone and fax with the remainder using the Internet site.

Sainsbury's is being more cautious but is also looking to extend its trials. It has been running an Order and Collect service in Watford and Solihull. Under this service customers place their orders via phone or fax but must come to the supermarket to collect the shopping. The charge is pounds 2.

Sainsbury's also runs an office shopping service at Hewlett Packard which it is looking to extend later this year. Staff at the HP office in Bracknell order their groceries through the office computer. The goods are then delivered to the car park at specific times in the afternoon from the local branch of SavaCentre in Calcot.

Safeway has been running a service called Collect and Go in two stores since July. This is similar to Sainsbury's Call and Collect scheme though it only offers dry groceries, not chilled or frozen items. Steve Webb, Safeway's marketing director, says: "We are not wholly certain what customers want yet. We are seeing if there is sufficient interest and the results have been encouraging so far."

The central conundrum for the supermarkets and other retailers is that if the electronic shopping home delivery does gain mass market acceptance, it will take customers out of the stores, leaving the retailers with a redundant store portfolio.

The initial costs are also very high for an uncertain reward. Iceland is investing pounds 12m in its home delivery operation and admits it will not break even this year. Given that Iceland is not charging for the service it is relying on a significant, and unspecified increase in sales volumes, to make the service pay for itself.

Even Tesco's pounds 5 charge would not cover its costs, according to Verdict's Mr Vaughan. His view is that customers in tower blocks or in homes that are off the beaten track would be far more expensive to service.

Many retail analysts feel that the home delivery operations being tested by retailers are more defensive than strategic. They feel retailers are protecting themselves against potential new entrants who may have lower cost bases.

It is a battle which the high street banks also face. With their expensive branch networks, the major clearers will struggle to compete with Internet banking operations which have lower costs than telephone-based providers such as First Direct.

For retailers it is ironic that after decades of encouraging customers to do more of the work in the form of self-service, packing and even self- scanning, the market appears to being going full circle - back to the delivery boy.

Iceland's nationwide launch was criticised by many analysts who said it was too expensive to operate and too easily copied to be successful. But it would only take one of the big four supermarket operators to break ranks and the rest would follow.