Tesco claims first dot-com profit

Tesco.com has hit profitability, becoming the first UK supermarket to make money online.

In fourth quarter figures released today, the supermarket said online sales for the period had reached £356m, a jump of over 50 per cent on the last year.

The milestone was predicted last quarter, when Tesco.com's online food sales reached profitable levels.

An 18 per cent jump in non-food sales this quarter takes the whole internet division to profitability.

However, the company said it will have to account for costs related to its investment in a US online supermarket venture.

Tesco broke into the US last year after it bailed out Groceryworks.com - the online arm of US supermarket chain Safeway - with a £15m investment.

At the time Tesco estimated the US online grocery market would be worth $1bn.

The service went live in January under the Safeway brand name, with both companies hoping to grab the market share left by defunct grocers such as Webvan and Kozmo.

While the dot-com grocers operated expensive warehouses, Tesco has based its online service on a pick-and-pack method - fulfilling internet orders by pulling groceries from supermarket shelves.

However, not everyone favours this model, with Waitrose backed Ocado.co.uk recently scrapping it in favour of investing in warehouse-based order fulfilment.

Tesco said it will continue worldwide expansion of its internet service which currently operates in four countries.

In contrast rival supermarket chain Safeway UK closed its online shopping service in November 2001, after just eight months in operation, claiming the money was better spent on its core high-street business.

In June 2000 Somerfield closed its online arm, calling it a "significant distraction to management".