New Tesco supplier fulfilment fees for online orders

Category: News
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Supermarket Tesco have sent a bombshell through the industry with a letter to suppliers informing them that they intend to charge new fulfilment fees for online orders through their stores and the Booker operations.

The Grocer, who broke the news, indicate that any suppliers that reject the new fulfilment fees could face range reviews or reduced prices for their goods.

The impact of this is that if you buy a tin of baked beans in a Tesco store, the supplier would be paid the agreed price, but if you order online for delivery then there would be a fee, possibly as much as 12p, added on as a fulfilment fee.

This is naturally tricky upfront for suppliers as they will have little advance visibility of how much of their produce is sold online compared to purchased instore. Plus 12p is a massive and unprecedented fee – it would be applied regardless of whether it’s a 65p tin of baked beans or a £22 roasting joint of beef. It’s not yet clear if the new fulfilment fees would be applied just for delivery or if they would also apply to Click & Collect orders, although it appears likely that Click & Collect would be considered as an online order.

Fees are described by the Grocer as significant, although smaller suppliers would receive an exemption from the charges. A ‘smaller supplier’ would be defined as trading less than a quarter million of produce per year.

Tesco have explained the move saying that they have shouldered the majority of the cost of fulfilment for their more than a million consumer online orders a week and from Booker supplying independent retailers and catering businesses. They say they need to have a more balanced approach with supplier contributions.

Without supplier contributions, Tesco say that changing shopping habits and growing fulfilment costs along with a more balanced approach to costs is essential for them to continue to invest in serving their customers.

The big question of course is how this will play out across the wider ecommerce industry. Other retailers will doubtless be watching Tesco and wondering if they too could squeeze margin out of suppliers for online orders. Supermarkets are perhaps unique with the advantage that their stock is local to customers, but that it probably still costs more than they charge for delivery to pay for an associate to pick the order instore, and then pay a driver and van to deliver the order. For those paying about £8 a month for a Tesco Delivery Plan, delivery is free so long as they spend £40 or more, so many households will be ordering weekly with a pick, pack, delivery charge equating to around £2 and that has to be loss making.

This is one for both suppliers to retailers who operate ecommerce in addition to their retail stores as ways to extract more margin tend to be contagious and quickly copied.

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New Tesco supplier fulfilment fees for online orders

One Response

  1. That will not go down well with customers if suppliers pull ask to pull their products from online and many unprofitable product is not actually available anyway. Availability is one of the biggest gripes.
    In many supermarkets online is the biggest department now and there is the cost of pickers and drivers that has kinda been covered with cuts to other areas recently.
    Suppliers would just increase prices to cover Tesco’s charges so the customer will pay anyway and might actually backfire on them.

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