Tesco has been given a month to improve how it treats suppliers following an investigation by the Groceries Code Adjudicator (GCA)
The GCA was concerned about three key issues: Tesco making unilateral deductions from suppliers, the length of time taken to pay money due to suppliers and, in some cases, an intentional delay in paying suppliers.
Over the course of her investigation, adjudicator Christine Tacon found delay in payments arising from data input errors, duplicate invoicing, reductions to maintain Tesco margin, as well as unilateral deductions resulting from forensic auditing, short deliveries and service level charges.
She said: “The sums were often significant and the length of time taken to repay them was too long. 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 advised Tesco to “hold off” making unilateral decisions from money owned for goods supplied, to give suppliers 30 days to challenge any proposed deductions and that the retailer correct any pricing errors within seven days of notification.
Tesco has been given four weeks to say how it plans to implement recommendations by the GCA, with regular reports demanded on its progress.
Concerns were also raised over payments for better positioning on the retailer’s shelves. Although no evidence of direct payments were found, Tacon is to launch a consultation into indirect methods of obtaining better positioning. “I am concerned that, as a result of these practices, the purpose of the Code may be circumvented to the detriment of smaller suppliers who cannot compete with payments for better positioning, category captaincy or to participate in range reviews,” said Tacon. “I have decided to launch a formal consultation with the sector, involving both retailers and suppliers, to help me reach a firm conclusion on whether these practices are acceptable.”
Dave Lewis, Tesco group chief executive officer, said: “In 2014 we undertook our own review into certain historic practices, which were both unsustainable and harmful to our suppliers. We shared these practices with the Adjudicator, and publicly apologised. I would like to apologise again. We are sorry.
“I am grateful to the Adjudicator for the professional manner in which the investigation has been conducted. We accept the report’s findings, which are consistent with our own investigation.
“Over the last year we have worked hard to make Tesco a very different company from the one described in the GCA report. The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed.
“In January 2015, we made material changes to our business that addressed the majority of the historic practices referred to in the report. We have changed the way we work by reorganising, refocusing and retraining our teams and we will continue to work in a way which is consistent with the recommendations.”