Tesco have been told to introduce significant changes to practices and systems by Groceries Code Adjudicator Christine Tacon after fshe found Britain’s largest supermarket had seriously breached a legally-binding code to protect groceries suppliers.
During a thorough investigation covering the period from 25 June 2013 to 5 February 2015 she found that the retailer had acted unreasonably when delaying payments to suppliers, often for lengthy periods of time.
The Adjudicator 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.
She considered Tesco’s breach of the Code to be serious due to the varying and widespread nature of the delays in payment. The Adjudicator has used her powersto order the retailer to make significant changes in the way it deals with payments to suppliers.
Her five recommendations include stopping Tesco from making unilateral deductions from money owed for goods supplied. Suppliers will be given 30 days to challenge any proposed deduction and if challenged Tesco will not be entitled to make the deduction.
The adjudicator also insists that the company 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.
Adjudicator Ms 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.
“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. This is a demonstration of the impact my role is making. I believe that my recommendations will lead to significant improvements at Tesco and in the sector.”
She launched the GCA’s first investigation in February following the Tesco announcement on its profit over-statement and the receipt of information from the retailer and the sector. The information available to the Adjudicator gave her a reasonable suspicion that the retailer 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.
Ms Tacon said: “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.”
The GCA has set a four-week deadline for Tesco to say how it plans to implement her recommendations.