Tesco resorts to ‘back margin’ tactics to keep costs down

Tesco has resorted to ‘back margin’ tactics as it charges suppliers for promotional spots in a bid to keep costs down amid rising inflation across the supply chain, according to The Grocer.

The supermarket giant has been using cost price inflation (CPI) negotiations with suppliers as leverage as it has begun increasing its requests for back margin payments.

Back margin payments are the fixed fees a retailer receives from suppliers to support promotions or secure instore placements. They are separate from ‘front margin’ payments – the difference between cost price and resale price – which consumers are aware of.

While previously commonplace at Tesco, the practice of charging suppliers for promotional spots had been largely removed by ex-boss Dave Lewis, who championed a move towards transparency, consistency and everyday low prices for the consumer.

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The Grocer’s source said the UK’s largest supermarket is currently offering a sliding scale of charges across both promotions and positioning, such as gondola ends or using in-aisle shelf markers.

“Before Dave Lewis came in, Tesco had an extraordinary number of ways of charging suppliers, but that completely changed and has been minimal ever since,” the source said.

“However, they’ve obviously got a tsunami of suppliers coming to them looking to increase prices and so they have brought back margin into discussions.

“It’s actually quite a clever thing to do because with the desperation of suppliers to get CPI through, many are going to accept this.”

Tesco told The Grocer it remains focused on quality, innovation and lower costs, and currently only operates five forms of back margin, compared with 24 in 2015.

“We’re working with our supplier partners to navigate the pressures of inflation and deliver the best possible value for our customers,” said chief product officer Ashwin Prasad.

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