Tesco has breached the Groceries Code on payment delays and must introduce “significant changes” to its practices and systems.
According to Retail Week, Groceries Code Adjudicator (GCA) Christine Tacon said Tesco “seriously breached” the code that was introduced to protect groceries suppliers.
She found that the retailer “acted unreasonably” when delaying payments to suppliers, often for lengthy periods of time. She said one supplier was left waiting for more than two years for a multi-million sum owed as a result of a systems error by Tesco.
She 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. My recommendations will deal with the weaknesses in Tesco’s practices during the period under investigation.”
Speaking to journalists this morning, Tacon added the practice of witholding payments from suppliers was “widespread”, particularly at the end of “key reporting periods” to help Tesco achieve margin targets.
She said: “The most shocking thing I found was how widespread it was, how many instances I came across, that it was in every sector and practically every supplier I spoke to had evidence of delays in payments.
“I spoke to supploers of every size form all over the UK, represting every sector, own-label and branded goods, and suppliers that were overseas suppliers supplying into the UK.
“The evidence I received revealed a number of examples of Tesco deliberately deferring payment of money in order to maintain its margin at key financial reporting periods.
“I find that Tesco knowingly delayed paying money to suppliers in order to improve its own financial position.”
Tesco boss Dave Lewis apologised and vowed to work collaboratively with suppliers to build trust.
He 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.”
Lewis said the Adjudicator’s findings were consistent with Tesco’s own investigation. He said: “The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed.”
The GCA has not been able to fine Tesco because the grocer allegedly committed the offences before it was given the power to fine a company up to 1% of its annual revenue last year.
Tacon’s recommendations include stopping Tesco making unilateral deductions from money owed. Suppliers will be given 30 days to challenge any proposed deduction and if challenged Tesco will not be entitled to make it.
The Adjudicator also insists that Tesco corrects pricing errors within seven days of notification by a supplier.
Tesco has also been told to improve its invoices by providing more transparency and clarity for suppliers and to put its finance teams and buyers through training on the findings from the Adjudicator’s investigation.