Watchdog slams Tesco for mistreating suppliers

By Alice Foster contact

- Last updated on GMT

Tesco boss Dave Lewis apologised for a second time after the ruling published today
Tesco boss Dave Lewis apologised for a second time after the ruling published today

Related tags: Tesco

Tesco mistreated suppliers by acting unreasonably, delaying payments and deducting money owed for goods, according to a long-awaited ruling by the Groceries Code Adjudicator (GCA). 

The GCA Christine Tacon was particularly alarmed by three key failings – Tesco’s unilateral deductions, the length of payment delays and, in some cases, intentional delays.

Britain’s biggest retailer has been ordered to introduce significant changes to its practices and systems after being found to have seriously breached the Groceries Supply Code of Practice (GSCP).

Tacon said: “The length of the delays, their widespread nature and the range of Tesco’s unreasonable practices and behaviours towards suppliers concerned me.

“I was also troubled to see Tesco, at times, prioritising its own finances over treating suppliers fairly.”

Three key failings

  1. Unilateral deductions 
  2. Time taken to pay
  3. Intentional delay in paying 

The investigation uncovered delays in payments due to data input errors, duplicate invoicing and efforts to maintain Tesco’s margin.

“I found that Tesco knowingly delayed paying money to suppliers in order to improve its own financial position,”​ Tacon said in her report published today (January 26). 

Tesco also made unilateral deductions from supplier payments in relation to historic claims, short deliveries and failure to meet service level targets. 

Tacon said: “The sums were often significant and the length of time taken to repay them was too long.

‘Owed a multi-million pound sum’

“For example, one supplier was owed a multi-million pound sum as a result of price changes being incorrectly applied to Tesco systems over a long period.

“This was eventually paid back by Tesco more than two years after the incorrect charging had begun.”

Tacon has made recommendations to deal with the weaknesses in Tesco’s practices during the period of investigation from ​June 25 2013 to February 5 2015.

Her investigation started after Tesco admitted overstating its half-year profits in an accounting scandal, which is being investigated by Serious Fraud Office (SFO).

City analysts yesterday warned that Tesco could face a £500M fine as a result of the SFO’s criminal investigation, although the GCA was unable to fine the retailer.

‘Tesco's accounting scandal’

Cantor Fitzgerald retail analyst Mike Dennis said the GCA was not given the power to fine retailers 1% of turnover until after Tesco’s accounting scandal had come to light.

“My view on that is the horse has bolted there,”​ Dennis said, noting that the power cannot be used retrospectively.

“They did not have the powers or ability to fine up to a certain level, until after Tesco said they had made a misstatement in their gross profit.”

Tacon launched the year-long investigation after evidence of suspected breaches of the code from three main sources: suppliers, Tesco’s internal report and a Deloitte report.

In response to the ruling, Tesco boss Dave Lewis has apologised for a second time to suppliers. Read more about his apology here​. 

This was the first investigation by Tacon after she was appointed as the first GCA in 2013. It was “as much about the GCA​as Tesco​, according to Shore Capital analyst Clive Black.  

Five recommendations

  1. Money owed to suppliers must be paid in line with payment terms
  2. Tesco must not make unilateral deductions.
  3. Data input errors identified by suppliers must be resolved promptly.
  4. Tesco must provide transparency and clarity in its dealings with suppliers
  5. Tesco finance teams and buyers must be trained in investigation’s 

Timeline of events

  • September 2014 – Tesco admits overstatement of first half profits by £250M ​ a sum later revised up to £326M
  • October 2014 – Serious Fraud Office launches investigation into accounting scandal
  • February 2015  – Groceries Code Adjudicator announces investigation
  • October 2015 – Tesco boss Dave Lewis apologises to suppliers for past mistakes
  • January 2016 – Groceries Code Adjudicator ruling and second apology from Tesco

Related topics: Supply Chain

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