Can Tesco make a marketplace work second time around?

As with other marketplaces, it is understood sellers across a broad range of categories – with an initial focus on petfood, health & beauty and alcohol – will fulfil orders directly. The launch is expected as early as the start of next year.

It’s not the supermarket’s first swing at the marketplace model: in 2012 it launched non-grocery offering Tesco Direct to third-party sellers.

That ceased trading six years later, with the company saying there was no prospect of the loss-making concern becoming profitable.

So what’s different now? What lessons should Tesco take from Direct’s demise? And how can it ensure its second shot is more successful?

According to Thomas Vosper, who joined Tesco from Amazon in 2014 to work on Direct, “the first attempt sucked”. The timing was all wrong. “The business was in the middle of a £250m accounting scandal. A new CEO was parachuted in and the rise of Lidl and Aldi meant the business had to focus on its core offering,” Vosper says.

But Tesco is now on a more solid footing as an organisation – a “very well-oiled machine” according to recent analyst appraisals – and last week lifted its outlook for the year as revenues and profits jumped in the first half. There’s also been a global pandemic since the death of Direct, which “brought and retained more shoppers to the online channel than when Tesco discontinued its first marketplace offering” says Martin Heubel, an Amazon consultant and former category manager.

“Shoppers increasingly turn to the online channel to conveniently complete their weekly shopping needs,” he adds. “The reintroduction of a marketplace model suggests that Tesco’s leadership is optimistic about competing effectively with other offerings in the market.”

One of those rivals, of course, is Amazon, which has been busy building out its grocery offering, most recently adding Iceland to the platform alongside Morrisons and Co-op, with Waitrose tipped to be joining soon. The e-commerce giant is working hard to be recognised for its food offering, this week launching the tagline, ‘Food too, who knew?’.

“As Amazon Fresh begins to partner with more of Tesco’s competition, the grocer is likely to feel growing pressure to take a page out of Walmart’s playbook in the US,” says Heubel. “Its intention: launching a marketplace that adds to its bottom line through fixed commission fees, leverages its store network as pick-up locations, and expands its catalogue.”

The marketplace model for supermarkets is also now more tried and tested, having been launched by Walmart, Kroger, Auchan, Carrefour and Ahold Delhaize.

Tesco will be able to mimic their approaches, tap the growing spend consumers make on marketplaces (up 10% year on year according to Mirakl research), and better serve the 77% of shoppers globally that say marketplaces are the most convenient way to shop.

Range boost

The marketplace model also gives Tesco the opportunity to massively increase its range, something upon which online grocer Ocado prides itself.

“Amazon will sleep well – for now – but I’d have nightmares if I was Ocado Group. Tesco can offer the omnichannel experience and click & collect too,” says Matt Anderson, chief strategy officer of marketplaces agency Optimizon.

Tesco will need to rethink its approach to third-party sellers, however. Direct’s failing has been blamed on the supermarket being too protectionist and controlling of vendors.

There was “often conflict” between the retail and marketplace teams, Vosper says, and “unnecessary competitive friction”.

Given the care retail teams took in tailoring product ranges for stores and online, “it was difficult [for them] to make the mental shift of introducing competing sellers, who sometimes offered better pricing, on the same platform”, Vosper adds.