Fulfilment costs: Will more retailers follow Tesco?

Tesco sign. Photo: Simone Hutsch/unsplash.com
Photo: Simone Hutsch/unsplash.com
By Reidar Molthe

20 April 2023 15:33

Fulfilment costs: Will more retailers follow Tesco?

Tesco’s fresh request that its suppliers should contribute more towards the cost of fulfilling online orders could result in other retailers copying their move. It is obviously a development that the suppliers do not want, in Great Britain or other markets.

However, when someone leads, and Tesco has a tradition of doing so for the past 30 years, others follow. It is of course something the brand suppliers fear can erode both top- and bottom line.

“Tesco shoulders the majority of online fulfilment costs – whether it’s serving more than one million online orders a week or getting products to thousands of independent retailers and catering customers. A fee on these extra costs is essential as we work to fulfil more orders for our customers,” writes Tesco in an e-mail to suppliers.

New or not?

Whether this fee (big or small) is something new can be discussed. It's been a long time since retailers paid a net price and “done deal”. A number of variables are involved in the negotiations between retailer and supplier; marketing costs, shelf price, turnover growth are only some, to mention a few.

In this sense, it is not surprising that Tesco is negotiating better terms for its online business. In principle, it is just another creative way to negotiate the cost of goods down - and that is, after all, a main task for a retailer, maybe the main task.

If Tesco does manage to pull this off, one can be sure that other supermarkets follow suit. In fact, the BBC believes, suppliers could be penalised if they do not agree to the new fulfilment fee from Tesco.

ParcelHero is wrong

“Normally, manufacturers and producers supply their products at a trade price to a supermarket chain and the retailer then takes on the task of marketing, selling and delivering them. The costs involved in retailing would normally be Tesco’s responsibility, not its suppliers,” comments David Jenkins, consumer expert and consultant in ParcelHero.

Jenkins oversimplifies. As previously mentioned, there are a number of variables involved in the negotiations between supplier and retailer. Jenkins knows that too, but his customers are probably first and foremost suppliers, and of course, they do not want yet another variable in the negotiating game.

However, if Tesco gets this accepted, you can be sure that it will arrive in the rest of Europe and in Scandinavia very soon.

Sources: NamNews, BBC, Tesco.

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