Farmers and suppliers have been warned by Tesco that they could be forced to pay new fees for produce purchased through their website.
Last week, the FTSE 100 grocer informed suppliers that they would be required to pay new Amazon-style fulfillment fees per item sold through Tesco.com or its app.
The fees proposed are 12p per item for brand goods and 5p each for own brands. However, Tesco has stated that the amounts are open to negotiation with each supplier.
Businesses such as fruit and vegetable growers who sell through larger middlemen fear that the cost will rise.
Lee Stiles of the Lea Valley Growers Association said that larger distributors will inevitably pass on costs to the bottom line. He said, “They clearly can’t absorb this kind of cost so they will pass it down to the grower.”
“It’s an unwanted extra squeeze on already thin margins. It could make the difference between a supplier continuing to operate or closing down shop.
British farmers blame recent vegetable shortages on supermarkets keeping prices high while increasing costs. Stiles claims that half of the Lea Valley greenhouses are empty.
“It’s bonkers. He said that it doesn’t make sense. It seems like they are trying to protect shareholder profits and not working in partnership with British growers.
Ged Futter, an ex-Asda buyer, advises suppliers through his consultancy The Retail Mind and said that the Tesco move was a multimillion pound “money grab”. “I’ve never seen anything so out of touch with reality in the last 25 years.” He said that there are gaps in their stock because suppliers won’t pay them the cost they need.
“Now, Tesco is asking the same suppliers to pay them for the privilege of shopping online. What is so absurd about that?
Ali Capper, the chair of British Apples and Pears trade group, stated that it would not be sustainable if her members paid for these new costs.
According to Promar’s report, they have seen supermarket returns rise by less than 0.8% last year while costs increased 23 percent.
Tesco responded by highlighting the new support it provided British farmers this year, including increased payments to chilled vegetable growers.
A spokesperson stated that “As we respond changing shopping habits, and our fulfilment cost continue to rise, we are talking with our suppliers to see how we can collaborate to create a more balanced approach to ensure we can invest in our customers.”
Tesco’s new terms could be in effect as soon as Monday, but the supermarket stated that there is no deadline for signing up. All goods sold by Tesco in the UK and Ireland, as well as all orders made through Booker (Tesco’s wholesale arm), will be subject to the per-item fees.