Tesco slammed for serious breach of Groceries Code
Tesco has been ordered to make wide-ranging changes to its trading practices and systems in a report by Christine Tacon, the Groceries Code Adjudicator, published today.
The company was in serious breach of the code, with varying and widespread evidence of extensive delays in payments to suppliers, sometimes involving significant sums of money.
Payment was sometimes deferred for up to 24 months even when Tesco acknowledged the debt, she found.
The frequency and scale of data input errors amounted to unfair business practices, she ruled.
On numerous occasions, Tesco overcharged or underpaid suppliers as a result of these errors, and failed both to rectify the errors or to pay money owed to suppliers within a reasonable time.
Tesco’s joint-business plan model also came in for criticism from Tacon.
Her report highlights internal Tesco emails which encouraged Tesco’s commercial team to press suppliers to defer payments which had falled due to enable Tesco to hit its margins under the JBPs.
Likewise, Tesco knowingly delayed payments to suppliers in order to make its own financial position seem better.
Tacon laid the blame for the issues on both systemic and cultural problems within the retailer.
Her report criticises poor administration and communication within Tesco, with inadequate processes for correcting errors in data and related payments.
Some buyers made little or no effort to resolve payment disputes, and on occasion the company simply unilaterally deducted money from suppliers without attempting to address concerns that had already been raised.
Tacon has ordered Tesco to stop making unilateral deductions from money owed for goods supplied.
Suppliers will now be given 30 days to challenge any proposed deduction and, if challenged, Tesco will not be entitled to make the deduction.
She has also ruled that Tesco must correct any pricing errors within seven days of notification by a supplier.
Tesco must provide more transparency and clarity for suppliers when invoicing, and ensure both its finance and buying teams are thoroughly trained on the adjudicator’s findings.
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.
“The sums were often significant and the length of time taken to repay them was too long.
“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 launched her investigation following Tesco’s admission in February 2015 that it had over-stated its profits by some £326 million.
The investigation covered the period 25 June 2013 to 5 February 2015.
The Groceries Supply Code of Practice is a legally binding agreement designed to protect groceries suppliers from abuse of market position by the UK’s leading retailers.
Dave Lewis, Tesco’s chief executive, responding to the report, 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. Today, 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.”
Tesco remains under investigation by the Serious Fraud Office for alleged accounting irregularities that came to light in October 2014.