Table of Contents
If you’re planning to do some DIY this summer or spruce up your garden, you can now add those heavy items to your weekly grocery store.
Tesco recently launched a new marketplace to sell products beyond its core grocery offering, aiming to become a one-stop shop for all household items.
It is the second time Britain’s biggest retailer has tried its hand at a market, after launching Tesco Direct in 2006, which closed in 2018.
But it’s not just Tesco that allows others to sell on its website, other big names such as B&Q and Superdrug are also doing so, although customers often complain that third-party products can be difficult to easily spot when browsing.
Every little bit helps: Tesco launches a marketplace to compete with Amazon and other platforms
With Tesco’s new marketplace, customers can now add garden furniture, pet accessories and even a wardrobe to their delivery.
But it’s not as simple as that. Although Tesco facilitates payment, the products will not come from their warehouses, but directly from third-party sellers.
And while convenience may be the initial sale, customers will receive Amazon-like service.
Why do Tesco and other retailers want to launch their own marketplace and what does that mean for their customers?
What is Tesco Marketplace?
The concept of the market is familiar. Platforms like Ebay have, for some time, linked buyers and sellers and taken care of payment and sometimes fulfillment or delivery themselves.
Amazon shook up the market with the launch of its mixed marketplace, which offers a mix of products from third-party sellers and products from its own brand.
Tesco has now joined a handful of retailer-run marketplaces, which sell third-party products to complement their existing range.
As Amazon has been expanding its grocery offering (adding Iceland to its platform alongside Morrison’s and Co-op), Tesco appears to be playing catch-up by launching its own.
This is not the first time Tesco has tried its hand at a platform for non-food items.
In 2006, it launched Tesco Direct, offering next-day delivery of items such as books and CDs, and larger products such as furniture.
It was shelved in 2018 under former boss Dave Lewis, blaming high marketing costs.
This time, the supermarket has launched a smaller, more curated market, relying on third-party sellers.
Retail analyst Jonathan De Mello told This Is Money: ‘I think it’s in areas that maybe they don’t want to sell (directly) because the margins are lower.
‘Clearly, food is a volume business and they sell many non-food items, but they do sell specific products with which they have relationships with suppliers.
‘From their perspective, therefore, it is an extension of the brand to other areas where they do not have coverage, or at least relationships with suppliers to sell it themselves.
“This time they’re doing it in a more considered way…I think last time they went for an almost scattershot approach.”
Where do the products come from and is my money protected?
Tesco will rely on the convenience factor to help build its market. It currently has 10,000 items for sale from 260 brands, in categories such as furniture, pet accessories and toys.
However, many people may be surprised when a product from a third-party seller shows up on their doorstep.
There are well-known brands such as drinks brand Diageo, which will sell alcohol directly on the platform, as well as Duralex. There are even more unheralded names selling everything from gazebos to Go-Karts.
Even with Tesco’s backing, what does it mean for quality control? As many Amazon customers know, a retailer is likely to have less oversight than if it were selling its products from its own warehouses.
However, This Is Money understands that all sellers will be reviewed before being allowed onto the platform, and it is only open to UK registered businesses, not individuals or private sellers.
The Tesco marketplace currently has 10,000 products on sale across more than 200 brands.
De Mello says: ‘They will have made sure to vet them to ensure they offer the best brand-like quality.
‘What we don’t want are suppliers taking customers’ money and that kind of thing. It gives Tesco a bad reputation. So the fact that they support it and the purchases is a good idea.”
Crucially, Tesco will refund customers if an item is missing, damaged or returned within 30 days.
This means we are unlikely to see “dropshipping”, when an online store does not keep its products in stock and the order is instead fulfilled by a supplier in a different country.
But it won’t stop companies selling cheap imported products that are priced higher.
Outside the UK, there is only Walmart versus Tesco which has a similar amount of data. I think there’s a really powerful opportunity for Tesco to say: “Well, you bought one of those, maybe you want one of these to go with it at checkout.” That level of granular data is super, super powerful.
Mark Anderson – Optimization
So how can customers make sure they are getting a good deal? Third party sellers on Tesco Marketplace are responsible for setting their prices.
Matt Anderson, strategy director at marketplaces agency Optimizon, says: “Amazon tracks prices across marketplaces and I imagine you’ll see something similar on other competing websites.”
“Hopefully, in the cost of living crisis, that will drive prices down, so it’s probably one more advantage for customers to consider versus brands.”
Clubcard will no doubt play a bigger role this time too, helping to direct the right products to its customers.
Anderson says: ‘Outside the UK, there is only Walmart versus Tesco which has a similar amount of data.
“I think there’s a really powerful opportunity for Tesco to say, ‘Well, if you bought one of those, you might want one of these to go with it at checkout.’ That level of granular data is super, super powerful.”
De Mello adds: ‘Sellers have access to a wealth of data that Tesco can provide them with: they will know what is selling and what to offer more of, where the margins are and how to look at promotions. It’s worth a significant amount in its own right.’
Tesco did not respond to a request for more information about whether sellers would receive data on their customers’ shopping habits or be charged for it.
B&Q’s Marketplace has been a success for the DIY retailer
One of these three barbecue accessory products (the tool set on the left) on the B&Q website, but it’s not immediately obvious until shoppers click on it.
Why are more and more retailers launching marketplaces?
The rise of Amazon has changed the retail landscape forever. As well as slashing prices and promising next-day deliveries, markets have prompted a number of retailers, including B&Q and Superdrug, to launch their own vision.
Amazon is the “elephant in the room” for retailers, Anderson says: “The success of this has been the amount of selection and the high quality and low price.”
At the other extreme, the cost of living and shrinking margins mean that retailers have reduced the amount of products available on shelves.
There may be some interpretation of how third-party marketplaces help champion small businesses: In fact, it’s harder than ever to get accepted onto supermarket shelves, given the saturation of grocery products.
But in reality, the platforms offer another source of income with minimal risk for retailers. Retailers don’t have to worry about clearing out old stock, new inventory, and the costs associated with warehouse management.
In some ways, retailers have the advantage. They already have large customer bases, which means they can redirect customers to third-party sellers while charging a commission, as well as charging brands to appear higher in searches.
‘Retailers have brand loyalty. In the case of B&Q, they have Diy.com and already get a lot of traffic. What should worry Amazon is the loyalty and brand affinity that consumers have with Tesco or B&Q.
‘When you visit another website, you always have something in mind: should I buy it here? Do I buy it from a trusted retailer? B&Q, Tesco, Debenhams and Superdrug already have that trust.’
However, De Mello believes this is less about a land grab for Amazon or even budget Chinese retailer Temu, than about increasing basket sizes.
‘It’s essentially a franchise, but for the online world… A traditional retailer wants to expand quickly into other areas. Franchising means quickly going from one site to 50 sites because you are outsourcing the business model and therefore you are also limiting the risk.’
The same goes for retailers whose suppliers take on the risk, receive a cut and, as a result, offer a greater variety of products to their customers.’
Whether or not Tesco manages to create awareness from its existing base, it already has a large proportion of the market.
Tesco has a 27.7 per cent share of the grocery market, according to Kantar, and its latest results showed online sales were up almost 9 per cent.
If the retailer can convince its customers to trust a new market, then it should be more successful than Tesco Direct. And other retailers may follow.
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.