Tesco has sent shockwaves through its supplier base with its plans to charge fulfilment fees for suppliers that use its online grocery and Booker wholesale arms.
Tesco informed its suppliers that they must pay the charge if they want to continue selling their products through the country’s largest retailer. The news has attracted much media attention and scrutiny from grocery industry experts, as the proposed changes threaten to have enormous implications for suppliers and retailers alike.
Tesco’s suppliers could face serious consequences if they do not agree to pay the new charge. Ashwin Prasad, the Group Chief Product Officer, notified Tesco’s suppliers via email. In the email, Prasad said, “We are writing to notify you of our intent to introduce a new fulfilment fee. We intend this fee to be applied across the whole Tesco Group, with an initial rollout to the Tesco UK and Booker businesses.” Prasad also added that the smallest suppliers would not be subject to the fee.
The Grocer, an industry publication, has reported that the charge would be 12p per unit on branded goods and 5p per unit on own-label products.
Tesco’s latest move may well be a result of its struggling online business model. Tesco's CEO, Ken Murphy, announced during the summer of 2021 that online orders had doubled during the pandemic, with profits booming as a result. However, fast-forward to January of this year, and Murphy was instead scaling back Tesco’s plan for a network of urban fulfilment centres, with online sales “stabilising” at a higher level than pre-pandemic but still significantly lower at their peak. Citing the growth in “customer count and complexity,” Prasad says that Tesco no longer feels it should “shoulder” such a burden regarding its online DCs and Booker warehouses.
Tesco's request has caused many suppliers to be up in arms, and it will likely face a major battle to get them to agree to the charge. This development is also worrying for Tesco as it is already in the midst of a battle with suppliers over CPI requests.
Tesco's rivals are likely to watch the situation closely, as they may feel that they too, need to rebalance their books. Furthermore, Tesco's move comes at a time when UK supermarkets are under intense scrutiny over their treatment of suppliers. It remains to be seen whether Tesco's move will prompt the UK's Groceries Code Adjudicator to intervene.
Ultimately Tesco’s plan to charge fulfilment fees to its suppliers has ignited a great deal of debate and discussion, but who ultimately will pay the price - the farmers, the manufacturers or the people who need to feed their families?
Is this another indication that 'business as usual' is not working, that we need a systemic change now in the food sector to ensure our food sector is fit for purpose and meeting the basic needs of those growing and consuming it?
Are you aware of the power you have to influence change?
Join our workshop and be a Changemaker.