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Tesco to scrap food delivery charges in bid to counter Amazon threat

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Tesco is set to scrap its delivery fees for online groceries for premium Clubcard holders in a bid to see off the growing threat from Amazon’s grocery delivery service.

Currently, Tesco charges £4.50 for deliveries, but CEO Dave Lewis has said that he is planning to drop the charge for customers who sign up to the Clubcard Plus scheme. The move is a direct response to Amazon ramping up its presence in the UK grocery sector, which has boomed during lockdown as shoppers search out all options to secure a delivery slot.

As a result, Amazon – whose UK retail website is ranked Elite in RXUK Top500 research – has expanded its UK offering via Amazon Fresh to offer free delivery to Prime members of fresh produce and bread.

Commenting on the proposals, Tesco CEO Lewis told The Daily Telegraph that “the idea of Prime is very similar to where we are in Clubcard Plus, in terms of bringing a whole bunch of benefits together, So an opportunity into the future for us is to think about how we put delivery into Clubcard Plus. That’s always been the direction of travel.”

Tesco currently accounts for 30% of the UK’s grocery market, where Amazon has just 3%, but the latter has seen a strong surge in use across the lockdown globally. The US retailer, which sells in the UK via the Amazon UK website, expanded its grocery delivery capacity across its markets by more than 160% during the quarter and tripled the number of locations where shoppers can pick up their groceries.

At the end of July, the company reported sales up by 40% and profits by 100% in the second quarter of its financial year – despite spending $4bn (£3bn) on Covid-19 costs including making its warehouses and logistics secure.

Since the end of the quarter, Amazon UK has made Amazon Fresh grocery delivery free for members of its Amazon Prime subscription scheme and is expanding the scheme further across the country.

Meanwhile, Asda has pledged to add a further 40,000 delivery slots in the UK by the end of the year. The retailer had already increased capacity by 65% to 700,000 slots during the pandemic and now expects to increase further as online grocery shopping shows no sign of slowing down.

The retailer has also expanded its delivery partnership trial with Uber Eats to take in 25 more stores – up from 10 presently – in the next two months.

“The pandemic has created a structural shift in customer behaviours towards grocery shopping,” CEO Roger Burnley told Reuters. “We have accelerated our online capacity expansion to meet levels we had anticipated reaching in eight years within a matter of weeks and we will continue to expand this offer.”

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