Groceries Code Adjudicator finds serious breach in Tesco’s payments to suppliers of groceries

Supermarket chain Tesco plc has been found to be in breach of the legally-binding Groceries Supply Code of Practice that protects groceries suppliers by Christine Tacon, the Groceries Code Adjudicator (GCA), the UK government reported on Tuesday.

The GCA’s first investigation was launched in February, after Tesco declared its profit over-statement and the receipt of information from the retailer and the grocery sector. Information available to the Adjudicator reportedly gave her a reasonable suspicion that the retailer had breached areas of the Groceries Supply Code of Practice.

In the investigation, Tacon discovered delays in payments arising from data input errors, duplicate invoicing and deductions to maintain Tesco margin, as well as unilateral deductions resulting from forensic auditing, short deliveries and service level charges.

Tacon found  that Tesco had acted unreasonably when delaying payments to suppliers, often for long periods, when she carried investigation covering the period from 25 June 2013 to 5 February 2015.

According to the Adjudicator, there were three key issues that were a cause for concern, with Tesco making unilateral deductions from suppliers, the length of time taken to pay money due to suppliers and there was found to be an intentional delay in paying suppliers in certain cases.

Due to the varying and widespread nature of the delays in payment, the Adjudicator considered Tesco’s breach of the Code to be serious and has used her powers to order the retailer to make significant changes in the way it deals with payments to suppliers.

Tacon has made recommendations, which include stopping Tesco from making unilateral deductions from money owed for goods supplied.

Grocery suppliers will be given 30 days to challenge any proposed deduction and if challenged Tesco will not be entitled to make the deduction.

Pricing errors must also be corrected within seven days of notification by a supplier.

Findings from the Adjudicator’s investigation have also resulted in Tesco being ordered to improve its invoices by providing more transparency and clarity for suppliers and to put its finance teams and buyers through training.

Commenting on her findings, Tacon stated: “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. ”

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

In addition to Tacon’s findings, she has voiced concern that practices by large suppliers could amount to an indirect requirement for better positioning. These practices include supplier negotiations for 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.

The GCA said: “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.”

Additionally, Tacon has 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.

Tesco has reportedly  accepted the findings and has issued a public apology.