Asda U-turn over online shopping

ASDA has been forced into a spectacular U-turn on its home shopping strategy, axing two depots that formed the backbone of the chain's internet service.

Warehouses in Croydon, Surrey, and Watford, Hertfordshire, were suddenly closed last week, marking an embarrassing retreat by the supermarket giant. Asda, owned by US giant Wal-Mart, had invested millions setting up and stocking the depots from which grocery orders are dispatched to customers who have placed orders on the internet.

It claimed they were more efficient than the store-based system favoured by Tesco where staff use handheld computers and pick customer orders off the shelves.

But according to industry sources, the Asda @t Home service has been hit by technical hitches and customer apathy, leading to piles of unsold groceries at the two warehouses.

The company will now close the bulk of its online operations around London and the South-East until the end of March while it sets up a new service supplying customers from 13 Asda stores. Its established internet ordering services in the North, Midlands and Wales will be unaffected.

Competitors vying for a slice of the £800m online grocery market, which is forecast to grow to £6bn by 2005, are already eyeing Asda's business. It is the third largest UK grocery retailer on the internet. Tesco, which runs the world's biggest and most successful grocery internet business and is the only one to have broken even, is planning to take advantage of the three-month gap in Asda's home delivery service around London. It will today announce a number of special offers to Asda @t Home customers who defect.

Tesco.com chief executive John Browett questioned whether the revamped Asda service would be ready in three months. He said: 'It took us two years to develop our in-store picking system and make it work. I'd be really surprised if Asda was able to develop an efficient operation that fast.'

Defending the break in service, an Asda spokeswoman said the group had wanted to brief the 330 staff who will be affected at the depots. All have been offered jobs at stores in the South-East. The spokeswoman added: 'We have been running an in-store picking system in parallel with the depots since October 2000.

'Though the depots were doing a good job, the in-store model proved more cost effective. We will now be able to double the number of products we are offering online customers.'

Asda is not the first supermarket to have stumbled in its online strategy. Safeway, Budgens and Somerfield have already shelved their home shopping plans.

The e-tail revolution has hit equally tough times in the United States. Last year, two of America's largest online supermarkets - Webvan and HomeRun - folded in the same week with losses totalling £595m.

Asda's sudden decision to close its Watford and Croydon depots, reckoned to be losing up to £7m a year, is the latest setback to the European ambitions of Wal-Mart. The world's biggest grocer is already suffering from poor sales in Germany.