BY KATIE - MYGREENPOD, 26 January '16

Britain’s largest supermarket breached a legally binding Code to protect groceries suppliers

Groceries Code Adjudicator Christine Tacon has told Tesco to introduce ‘significant changes to practices and systems’ after finding Britain’s largest supermarket seriously breached a legally binding Groceries Supply Code of Practice to protect groceries suppliers.

Delayed payments

During an investigation between 25 June 2013 and 5 February 2015, the Adjudicator found that Tesco had acted unreasonably when delaying payments to suppliers, often for lengthy periods of time.

Ms Tacon 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 retailer has been ordered to make significant changes in the way it deals with payments to suppliers.

‘Unreasonable practices’

Ms Tacon’s 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 company must also correct pricing errors within seven days of notification by a supplier and improve its invoices by providing more transparency and clarity for suppliers. Its finance teams and buyers must be trained on the findings from the Adjudicator’s investigation.

‘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.’

Christine Tacon, Groceries Code Adjudicator

Raising suspicions

Ms Tacon 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’s 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.

‘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.’

Christine Tacon, Groceries Code Adjudicator

Shelf position

The GCA has set a four-week deadline for Tesco to say how it plans to implement her recommendations. She will then require regular reports from the company on progress, including information on the number and value of invoices in dispute as well as the length of time they remain unresolved.

The Adjudicator also investigated whether Tesco had required suppliers to make payments to secure better shelf positioning or an increased allocation of shelf space in breach of the Code. She found no evidence of this.

However, she was concerned to find practices that could amount to an indirect requirement for better positioning. These practices included 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.’

Christine Tacon, Groceries Code Adjudicator

Ms Tacon has also written to the Competition and Markets Authority (CMA) asking them to consider the issue of category captaincy as well as referring evidence that Tesco may have breached CMA rules by operating without all its terms of supply agreement being in writing – a factor that may have contributed to payment disputes and delays.

Click here to read the full GCA report on the investigation into Tesco plc.