Seven ways Tesco’s fulfilment fee plans are wrong

1. The principle

Tesco’s business has indeed grown in size and complexity but it’s reaped the rewards in terms of supplier support – particularly on the wholesale side where, having achieved around £200m in economies of scale within 18 months of the Booker acquisition, it’s added £3bn of sales, and boosted profits further.

2. The precedent

In terms of online fulfilment, Tesco has been fulfilling orders at a loss for years. But that was a bed it made for itself, as an online grocery pioneer, over 20 years ago. And suppliers have already paid for the growth online may have provided so why should they stump up more because the model isn’t working. The only possible justification is rapid delivery, as part of a process of trading brands into a limited one-hour platform as was the case when convenience stores first opened. 

3. The pricing

What justification is there for charging as much for a single stick of gum as for a bottle of wine? Not in terms of weight/CO2, nor the care required to pick it and pack it. And why should the charge for a branded item be any different from an own-label one? The delivery costs are the same.

4. The timing

With so many suppliers struggling due to soaring costs, these inherently inflationary moves would have to be passed on. But to whom? Are suppliers being given the option not to supply via these channels? Are they being given the option to charge more for their products on these channels? Would other retailers accept CPIs to subsidise Tesco’s demands?

5. The timescales

Tesco has rowed back from its 48-hour notice period but only following fierce initial criticism.

6. The fudge

Having threatened suppliers with delistings in chief product officer Ashwin Prasad’s initial letter, Tesco now says the fees are optional. That leaves buyers between a rock and a hard place, because suppliers will surely opt not to comply. But presumably the business plan for the new financial year is predicated on securing these fulfilment fees.

7. The risk

As well as potential GSCOP fines, and the reputational risk, Tesco suppliers – particularly global ones – have already shown they are willing to stop the trucks. Why would it want to jeopardise availability now, months after Prasad appealed to suppliers to help improve it? Even its retail customers are worried.

It all feels so ill thought through. After a long run making all the right calls – right for customers, right for suppliers, right for Tesco – this feels like a move that could be the opposite: wrong for suppliers, wrong for Tesco and worst – if suppliers revolt and Tesco follows through with any form of punitive action – wrong for customers to.