Tesco breaches Groceries Code on supplier payments, says Groceries Code Adjudicator

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 withholding payments from suppliers was used 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 suppliers of every size from all over the UK, representing 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.

Tacon said many suppliers have reported improvements in their relationship with Tesco since the investigation began and said the grocer had kept her informed of changes it is making to deal with the issue. “I believe that my recommendations will lead to significant improvements at Tesco and in the sector,” she said.

The decision concludes a year-long investigation by the Groceries Code Adjucicator. The GCA probe is not connected to the investigation by the Serious Fraud Office into the £326m overstatement of profits at Tesco. The grocer is accused of bringing forward payments to flatter its financial results.

During the GCA investigation Tacon 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.

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

The GCA has set a four-week deadline for Tesco to say how it plans to implement her recommendations.

Lewis said Tesco had reorganised, refocused and retrained its teams since 2015 and supplier relations had now improved.

He said it was now the first UK retailer to publish its payment terms with suppliers and introduced payment terms for 14 days for hundreds of small and medium-sized businesses.

“We have made a lot of progress, but there is still more we can do. Today our colleagues are empowered to do the right thing for our customers and for our suppliers, and I am extremely proud of the way they have responded over the past year,” he said.

Although Tacon found no evidence of Tesco taking payments from suppliers to secure better shelf positioning, she was concerned to find practices that could amount to an indirect requirement for better positioning. She will launch a formal consultation on this matter across the sector.

The Competition and Markets Authority (CMA) has been contacted to determine whether Tesco has breached its rules by operating without all of its terms of supply agreement being in a right, a factor that may have contributed to its payment disputes.