Tesco is expected to report the lowest profit growth for the best part of a decade in its full-year figures this week. But fighting back, the company has started talking about its new "Market Place" initiative which will allow third-party retailers to sell goods through its Tesco.com website.
So just as shareholders might be losing confidence en masse – expected pre-tax profits of £3.64bn would be the smallest profit growth in seven years - comes news that the company will be opening up its website to other retailers. This marketplace strategy is already widely used by online retailers like Amazon of course, but for a supermarket chain it’s an unusual move. Tesco will doubtless be hoping that the announcement will quell investor chatter that its strategy might be past its sell by date.
No surprises that Tesco - still the UK’s largest retailer with nearly a third of the grocery market - is not just going to hand over a slice of its enormous retail muscle gratis. Any firms which sign up to the deal will pay a cut of all sales made through the website to Tesco, allowing the supermarket to cream a nice living off the earnings of its more specialist competitors.
And Tesco is well placed to mount a meaningful challenge against the more established online retailers. Its distribution network is vast and efficient. Amazon isn’t going to be quaking in its boots though, as their website is their core business and the majority of their $48bn (£30.3bn) revenue comes from their online offering already. Tesco has a much larger turnover at £67.6bn as of April 2011, but being a supermarket chain means the website can only be an add-on to the core business.
But the distribution network could be a clincher if the new initiative catches on: an increasing number of Tesco stores (at the moment around 500) already offer the so-called click-and-collect service, where customers order products on the website and pick them up in-store. A compelling proposition for smaller outfits which can only dream of such national reach.
One retailer, Crocus, is already selling plants and garden equipment through the site and is expected to be joined by others in the DIY and homewares area. The initiative means the Tesco brand will be able significantly to expand the range of goods it can supply, and on a pretty rapid turnaround. Will the boys and girls over at Amazon be losing much sleep over this? The jury’s out…