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Online profits up as Tesco delivers more than a billion items

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Tesco’s online grocery business delivered more than a billion items in its latest financial year, the supermarket revealed today.

Tesco said profits at its online business, the third most visited retail website in the UK, rose by 26% to £136m in the year to February 27 2010. Sales rose by 14% to £2.1bn, as it announced its annual results.

The online business, which includes dotcom grocery and the non-food Tesco Direct arm, now employs 20,000 people.

Tesco said the number of active online grocery customers had grown to more than one million, while basket size had also increased. “Record levels of availability and innovations such as price matching on substitutions are improving the customer experience and helping to reduce calls to the service centre,” it said.

At the same time delivery costs had been reduced through the use of technology to improve driving and routing efficiency. As a result fuel consumption per order had fallen by 20% in the last three years.

Meanwhile sales at Tesco Direct were up by 28%, though this part of the business has yet to make a profit. Tesco Direct sells non-food items via the internet, phone and catalogues, giving customers the choice of delivery to their home or collection at one of the 261 in-store Direct desks.

During the year two new dotcom sites were launched., which sells Tesco and other brand clothes, has received strong feedback since launch in October 2009, said Tesco. Meanwhile, launched in the same month, had hit £1m in sales of CDs, DVDs, games and film and album downloads in its fourth week.

Terry Leahy, Tesco chief executive, said: “Across all parts of our strategy – UK, international non-food, services – our business is now stronger than it was before the recession. With leaner operations, improved market shares, strategic acquisitions performing well and a strong organic development programme, we’re well-placed for sustained profitable growth.”

The online sales update came as Tesco announced pre-tax profits for the year ended February 27 2010 came in at £3.2bn, a rise of 8.9% compared to the previous year. Revenue was £56.9bn, a rise of 5.6%.

The company expects to create 16,000 jobs in the current financial year, including 9,000 in the UK. In the financial year just gone it opened 7.1m sq ft of new space, of which 72% was outside the UK.

It revealed its loyalty card, Tesco Clubcard, had continued to expand in the UK, with 18% more British households redeeming Clubcard vouchers than in the previous year. But Tesco says it now has more Clubcard members overseas then in the UK.

Our view: Throughout its results, Tesco says recession has made it more efficient. That’s to be seen in the online business as well, where use of technology has driven down the cost of delivery – and its carbon footprint at the same time. This is evidence of a phenomenon predicted by many commentators at the beginning of the recession – that the companies who did best in the downturn would be those who became as efficient as possible. It’s fascinating to see it in action.

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