U.K.: Tesco in hot water for delayed supplier payments
Tesco seriously breached a legally binding Groceries Supply Code of Practice by deliberately delaying payment to grocery suppliers, an Ombudsman report has found.
Groceries Code Adjudicator (GCA) Christine Tacon has told the supermarket giant to significantly change its practices and systems after finding breaches in the Code, in place to protect suppliers.
From her extensive investigation from June 25, 2013 to Feb. 5, 2015, she found the retailer had acted unreasonably when delaying payments to suppliers, often for lengthy periods of time.
The U.K. government Adjudicator was concerned about three key issues: Tesco making unilateral deductions from suppliers, the length of time taken to pay suppliers and in some cases an intentional delay in paying suppliers.
Tacon considered Tesco's breach of the Code to be serious due to the varying and widespread nature of the delays in payments and has ordered the retailer to make significant changes to the way it deals with payments to suppliers.
Reacting to today's (Jan. 26) announcement and publication of the report, Tesco has apologized and is going to great lengths to reassure the public that its payment model has already changed and it is committed to rebuilding trust with suppliers.
"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," Tesco Group CEO Dave Lewis says in a statement.
"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."
The report is now published in full and according to Tacon the length of delays, their widespread nature and the range of 'unreasonable practices and behaviours towards suppliers' concerned her.
"I was also troubled to see Tesco at times prioritising its own finances over treating suppliers fairly.
"My recommendations will deal with the weaknesses in Tesco's practices during the period under investigation.
"I am pleased that many suppliers have reported improvements in their relationship with Tesco to me since the period under investigation. Tesco has also kept me informed of changes it is making to deal with the issues."
Tacon launched the GCA's first investigation following the Tesco announcement on its profit over-statement and the receipt of information from the retailer and the sector, which gave her 'reasonable suspicion' the supermarket had breached areas of the Groceries Supply Code of Practice.
During the investigation she found delay in payments arising from data input errors, duplicate invoicing, deductions to maintain Tesco margin; and unilateral deductions resulting from forensic auditing, short deliveries and service level charges.
"The sums were often significant and the length of time taken to repay them was too long," she said.
"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."
Tesco has four weeks to say how it plans to implement Tacon's recommendations and must regularly report to the Adjudicator, including information on the number and value of invoices in dispute as well as the length of time they remain unsolved.
The Adjudicator also investigated whether Tesco had required suppliers to pay for better shelf positioning, but found no evidence of this.
However, Tacon was concerned to find practices that could amount to an indirect requirement for better positioning including large suppliers negotiating better positioning and increased shelf space in response to requests for investment from Tesco, as well as paying for category captaincy and to participate in Tesco range reviews.
"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.
"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."