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Ocado, the grocery home-shopping business part-owned by John Lewis, is launching a price war against Tesco, despite losses of nearly £300 million since its launch eight years ago.
Ocado has vowed to match prices with Britain's most powerful and profitable retailer on 3,500 branded products - from Pampers to Coca-Cola - in the hope that it can attract thousands more customers over the coming months.
Tim Steiner, the chief executive of Ocado, said: “We have a reputation for superior service and excellent quality, but we have been perceived as too expensive and out of the reach of many households. From Wednesday, that will no longer be the case.”
The move surprised industry experts and brought a wry response from Tesco. Sir Terry Leahy, the chief executive of Tesco, once described Ocado as a charity, given the time that it has taken the business, set up by three former Goldman Sachs bankers, to break into the black.
A Tesco spokesman said yesterday: “It's good to see that Ocado regards Tesco's low prices as a benchmark.”
It is thought that Ocado will have to invest about £10 million to keep its price pledge. The group, which supplies Waitrose food and drink alongside everyday branded products, claims to be making a profit at an operating level but is thought to have made a pre-tax loss of £30 million in 2007. Tesco posted a pre-tax profit of £2.6 billion last year.
Richard Hyman, managing director of Verdict, the retail consultancy, said: “Whether it's suicidal or not is hard to say, but this could potentially be quite damaging for Ocado. "People aren't going to switch to Ocado because they have Fairy Liquid at a lower price. If you're worried about price, you'd go to Tesco. I think it's a very bold move.”
Ocado has built up a loyal customer base in the South of England through its partnership with the John Lewis-owned Waitrose and a focus on having the best customer service in the market. It claims to hold a 50 per cent share of the lucrative grocery home-shopping market in London.
Its founders - Tim Steiner, Jason Gissing and Jonathan Faiman - have invested heavily in a state-of-the-art, automated warehouse in Hatfield, Hertfordshire, with the help of investors such as John Lewis and Jorn Rausing, the Tetra Pak billionaire.
Mr Gissing said yesterday that the price-match campaign was designed to change the perception of Ocado as an expensive retailer. He said: “We thought the best way to demonstrate clear, transparent price competitiveness is to match Tesco prices for all branded goods stuff we sell. It will cost several million pounds, but we can absolutely afford it.
“The business is flying and customers have told us if they can buy Pampers from us at Tesco prices and Waitrose ready meals at Waitrose prices, then we have a shop they will truly love.”
Mr Gissing added that Ocado regarded Tesco's consistent sniping as a badge of honour. He said: “I remember Richard Branson saying that when he was being targeted by British Airways he was terrified but thought, 'I must be doing something right.'
“Tesco is the biggest and the best, but when they say things like ‘Don't shop at Ocado, shop at Tesco', you think: ‘OK, I'm having my BA moment here'. When your largest competitor is focusing on you, you think: ‘I'm on to something here.'”
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ocado are more committed with the issue of name badges than there safety of it's employees, being told by one driver that sometimes they have to take customers shopping up 5-10 flights of stairs with the same time frame as it would take to deliver to a customer who lives in a semi, ridiculous.
ciaran, london,
ocado has shown since starting that it has one of the highest employee turnovers within the grocery market, without staff what will the company look like in the future?. a £50million loss each year in it's first 6 years of opening, £7million more invested to slash prices to compete with tesco.
ciaran, london,
As an ex delivery driver, working for ocado was my worst job i have ever had the misfurtune to have had. customers were not the problem, infact the customers kept me wanting to try and persue a career with ocado but the lack of communication between management and staff were somewhat non exsistence.
john beagle, welwyn,
I shop with ocado every week, I have recommended them to many friends. for a busy working couple it is the only way to go, who can boast that their cupboards are full at 7.30am on saturday morning ready for the weekend to begin
no more 4 hour round trips to supermarkets putting food in trolleys putting it on conveyor belts , putting it in the car , getting it out of the car and putting it in cupboards
well done ocado your service is second to non
ALISON , COVENTRY , UK
I have shopped with Ocado for about four years. There has never been a problem. Twice there have been been missing items and both were refunded instantly, one of them on-line.
We used to use Tesco whose Internet service had one great advantage, the off-line feature which made it possible to set up the order without being connected. This was helpful to my mother (then in her late eighties) who sometimes took a long time to assemble her order. When this was withdrawn she found the on-line website unmanageable without long phone calls. She was told by Tesco not to use the off-line system so she doesn't, but shops with Ocado.
Sometimes the Tesco delivery staff were good. The Ocado ones have invariably been polite, cheeful and helpful. Do Tesco send you an SMS to remind you of an impending delivery, given the driver's name? Do Tesco provide overshoes to protect delicate floors (do they even carry stuff to the kitchen)?
J Underwood, London,
J King, If the service is that bad, why do ou still shop with them?
I have used Ocado a couple of times, and never had a single problem, however I still prefer to actually go to a shop and pick my own food, which is why internet food shopping holds no real attraction for me.
Thomas, London,
I used to use Ocado but I've given up as a result of their poor quality of service.
Robert, St Albans,
I have been using Ocado for the last year and although do notice the prices being more expensive, I think it is worth every penny, the quality of the food and the service you receive from them is second to none, I have never had to complain about items missing or poor quality vegetable/fruit etc. I like the fact it has come direct from the warehouse so misses out being handled again by someone in the supermarket fulfilling your order. I
Emma Donovan, Solihull, UK
I am considering switching from Tescos online to Ocado.
We have found that fruit ordered from Tescos online consistently contains a bunch of bad stuff (typically very close to expiry date).
To be fair, they never quibble when you phone up for a refund. However, you never quite know whether you will get a full edible order from Tescos.
Chris Senanayake, Harrow, Middlesex
Ocado's customer service *is* good, however, I have found that the delivery service still has issues (i.e. fragile groceries smashed / damaged, items not arriving, etc.). The difference is that if Ocado says they'll follow up, they do.
It will be a relief to see their prices lower, I have to say! I find when I do my "everyday" shop there, I spend about £120 vs. about £70 at Sainsburys. And their "offers" are simply pants. Have you seen their "bundle offers"? If you spend upwards of £15 on a full meal (bread, main, wine, side, dessert), they'll give you 15% off. That amounts to about £2, and I'm sure by selling 5-6 items they profit largely despite.
Anyway, I am not complaing. Long live Ocado & jl. Just lower the prices!
Karie, St. Albans,
I have shopped with Ocado from the start also. However, I have found the service to be one of the best for on-line grocery shopping, yes admittedly the prices can be higher than the average high street store, but the quality that Ocado have delivered to me time and time again is well worth the price. I am very happy to see that Ocado are now going to tackle the price issue and wish them all the best.
S Brown , Kebworth, Hertfordshire
I love the comments around the 'perception' that Ocado is more expensive.
This is not a problem of perception - it IS more expensive.
I was a huge fan for more than two years. One week, Ocado could not do a delivery so I trudge down to my local Morrisons. I could not believe it when my bill was 30% cheaper. I have never shopped at Ocado since that day.
But a price promise might tempt me back......
tcordrey, london,
I recently swapped to Ocado from Tesco. I was looking for better quality products but with a keen eye on the price also. Thus far they have delivered.
Julie Dale, Stone,
its interesting but i would have thought that if you were worried about price you would go to lidl where you get excellent quality at much lowere prices,sometimes 70 percent cheaper than tesco.
john gale, purley, uk
We have shopped at Ocado from the outset. They bang on about the quality of their service and trade on the John Lewis/Waitrose connection but the quality is nowhere near as good; they drop items without warning or explanation; and they are not receptive to legitimate complaints made to their management which are often ignored. Maybe Gissing & Co should try to improve these aspects rather than take on Tesco which is a recipe for disaster. Waitrose don't try to compete with Tesco - the demographic of their customer is entirely different and that is why they and John Lewis succeed and why Ocado lose money and will continue to do so. Richard Hyman is right to suggest that this is a hazardous strategy to adopt.
J KING, LONDON,