Ocado chief executive Tim Steiner has hit back at Tesco boss Sir Terry Leahy following his jibe about the viability of the loss-making online grocer.

Sir Terry, announcing Tesco's interim results on Tuesday, said the Ocado model, where groceries are picked from a single warehouse and distributed to customers mainly in the south east, was likely to be unsustainable long-term.

But speaking after the Barclays National Retail & Wholesale Annual Conference in London, Steiner said the comment showed Ocado had the UK's biggest retailer rattled. "Why he feels he has to comment about us, a £300m turnover company compared with that huge business, I'm not sure. Maybe we are getting to him," said Steiner.

This week Ocado revealed a pre-tax loss of £43m for the 53 weeks to 3 December 2006 - compared with a £45.5m loss from the previous year. However, Steiner rejected both Sir Terry's criticism of the model and industry speculation that Ocado could follow the route of failed US online grocers Webvan and Peapod.

"We are the only business out there taking market share from Tesco and have done so for five years running," said Steiner. "Indeed we are bigger than Tesco within the M25."

Steiner claimed Ocado currently operated with one fifth of the substitutions and out of stocks as its nearest rival - a testament, he said, to the warehouse method and something that could not be replicated by picking from stores.

He claimed it was the only way to predict availability accurately, which was not possible in stores being shopped in by the general public at the same time.

He admitted Ocado had made mistakes but predicted a solid future for the company.

"I went out to the US to visit Webvan twice and learnt a lot of lessons - mainly how not to run a business," Steiner added.

He predicted Ocado would significantly reduce its losses this financial year, which ends in December, and the company would make a profit in the next quarter.

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