Tesco faces backlash over proposed fulfilment fees for online suppliers
Ireland's Department for Agriculture has said that payments by suppliers for “stocking, display and listing” are prohibited unless both parties agree to them
23 March 2023
A widespread backlash has greeted Tesco, after the retail giant stated its intention to impose fulfilment fees on online suppliers in the UK and Ireland, which have been likened to the types of fees used by Amazon.
A spokesperson for Ireland’s Department of Agriculture, under which grocery legislation is governed through the Unfair Trading Practices Regulations, has since said that payments by suppliers for “stocking, display and listing” are prohibited unless both parties agree to them.
The Department has also revealed it is in ongoing contact with Tesco Ireland to “better understand the nature of the planned change and ensure there is no risk of a breach of UTP regulations”.
Impact of fees
E-commerce expert, webretailer.com, states that a number of businesses in the farming industry and elsewhere have called for the supermarket chain to reassess these new fees, which if imposed could put many of them out of business.
Webretailer.com has broken down exactly what these fees entail and what they might mean for businesses that sell online, should they go ahead.
Fulfilment fees are the total costs and expenses involved in receiving, handling, storing and distributing or redistributing a product, Webretailer states. These fees are calculated by taking the revenue from each product sale per unit, minus the total cost of purchasing it and transporting it from its original location to where it is sold. Some other costs such as advertising and warehousing costs may also be taken into account.
Fulfilment fees are most commonly associated in the UK with Amazon, as the company operates more than 20 fulfilment centres or warehouses across the UK, plus many more around the world.
Tesco’s proposed fees are said to be an extra 12p for branded items and 5p for Tesco home brand products. However, Tesco has outlined that the fees can be negotiated per case with each of its suppliers.
Webretailer points out that while these fees might not sound like much to begin with, they represent the cost per unit for every online sale made in the UK, meaning the costs will truly mount up quickly.
However, Tesco’s smallest suppliers – that’s those with a turnover of £250,000 or less – will be exempt from these fulfilment fees.
Furthermore, if the fulfilment fees do go ahead as planned and suppliers fail to comply, some businesses could find themselves facing hefty fines.
‘More balanced approach’
Tesco has argued that the new fees are going to be essential to help the supermarket chain cope with more customers doing their shopping online than ever before.
In an email sent out to all of its suppliers, Tesco stated that it “shoulders the majority of fulfilment costs – whether it’s serving more than one million orders a week or getting products to thousands of independent retailers and catering customers”.
The introduction of new fulfilment fees is said to be part of Tesco’s “more balanced approach”. Suppliers were told that they need to get on board with the idea or else face range and price plan reviews, or at worst fines.
Suppliers will not be the only ones affected by these changes, Webretailer adds, as Tesco customers could find more empty spaces on shelves or lack of availability online as a result of supply problems and disputes.
There is no deadline for suppliers to engage with the scheme – which had been due to start mid-March, although a stand-off is expected to be imminent between Tesco and at least 15 of its key suppliers.
An email, seen by the BBC, warned suppliers could be penalised if they do not agree to the new “fulfilment fee”.
Business retail consultant Ged Futter said the move was “outrageous”.
While small businesses with a turnover of less than £250,000 would not have to pay the fee, online sales through the company’s wholesale Booker business would be included.
Ged Futter, a former buyer for Asda, did not believe any other supermarkets used this type of operating model, which he understood had been due to start mid-March.
The retail price consultant, who helps businesses negotiate with supermarkets, said he had received 15 calls from suppliers. They all told him they would refuse to pay the fee.
He added that Tesco had “picked the wrong moment to do this”. As Tesco was not accepting price increases from suppliers there would soon be more gaps on the supermarket shelves, he added.
‘Start of conversations’, says Tesco
Tesco said the letter was “the start of conversations with our suppliers” and there was no deadline for engagement.
The retailer said its smallest suppliers would not be liable for the fee: “We know there are some real pressures on many of our suppliers, particularly in agriculture, and we have stepped up support in response to that.”
In the UK, the government’s Groceries Code Adjudicator, which regulates relationships between supermarkets and suppliers, said it was aware of the issue and seeking further information from Tesco. It encouraged suppliers with concerns to get in touch.