LONDON — Dave Lewis, the chief executive officer of Tesco, P.L.C., pointed out changes the retail chain already has made after the Groceries Code Adjudicator for the United Kingdom on Jan. 26 ruled on the company’s past supplier practices.
The issues dealt with Tesco delaying payments to suppliers and whether or not suppliers were required to pay Tesco to secure better positioning for their products or increased shelf space. The investigation covered the period June 25, 2013, to Feb. 5, 2015, and centered on the U.K.’s Groceries Supply Code of Practice.
“In 2014 we undertook our own review into certain historic practices, which were both unsustainable and harmful to our suppliers,” Mr. Lewis said. “We shared these practices with the Adjudicator and publicly apologized. Today, I would like to apologize again. We are sorry.
“I am grateful to the Adjudicator for the professional manner in which the investigation has been conducted. We accept the report’s findings, which are consistent with our own investigation. Over the last year we have worked hard to make Tesco a very different company from the one described in the G.C.A. report. The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed.”
Tesco said it undertook 14 initiatives to improve the way it works with suppliers and runs its business. The initiatives include creating a supplier help line to deal with invoice queries and other supplier issues in 48 hours, updating and relaunching its Code of Business Conduct to all Tesco colleagues, and reducing the number of ways it calculates commercial income from 24 ways to 5 ways.
Tesco operates more than 3,500 stores in the United Kingdom. Problems arose on Sept. 22, 2014, when Tesco said it believed guidance issued on Aug. 29, 2014, for profits over a six-month period was overstated by an estimated £250 million. Tesco contacted the Groceries Code Adjudicator, which began an investigation on Feb. 5, 2015.
Christine Tacon, Groceries Code Adjudicator, said the investigation found Tesco deducted or deferred payments to suppliers. Sometimes the money was not repaid for a year or two. Ms. Tacon gave data input errors, duplicate invoicing and Tesco withholding payment to meet budget targets as some of the reasons for deferred payments. She said Tesco also unilaterally deducted charges.
Ms. Tacon said Tesco did not directly require payment from suppliers to secure better positioning or increased shelf space. The retailer may have made indirect requirements, however. For example, Tesco training material in January 2014 said, “You can request payment for better shelf positioning or for an increase in shelf life space.” In October 2014 the training material said, “You can neither request nor require a supplier to pay for a better shelf position. However, if payment is offered by a supplier to improve the shelf position of their product, you can accept it.”The Groceries Code Adjudicator Act 2013 established the Groceries Code Adjudicator, which enforces the Groceries Supply Code of Practice. The code applies to all retailers with U.K. annual groceries’ revenue exceeding £1 billion.