Tesco faces supplier probe

Tesco Superstore Picture: PA Wire

Tesco Superstore Picture: PA Wire - Credit: PA

Supermarket giant Tesco is facing an official investigation into practices including any delays in payments to suppliers.

The Groceries Code Adjudicator (GCA), Christine Tacon, announced the move, saying she had formed a 'reasonable suspicion' that the retailer has breached the Groceries Supply Code of Practice.

She took the decision after considering information submitted to her about practices associated with the profit over-statement announced by Tesco last year.

The company said in September 2014 that it had overstated profits by £250 million, which led to the Financial Conduct Authority launching a probe.

Tesco said it had already changed the way it works with suppliers.

Ms Tacon said she has held discussions with Tesco and now needs more information from direct suppliers and others to determine what further action to take.

The role of the adjudicator was set up in 2013 to regulate the relationship between the 10 largest retailers and their suppliers.

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The investigation, the first to be held, is expected to take up to nine months and the adjudicator has called for evidence to be submitted by the beginning of April.

It will cover the conduct of Tesco going back to June 2013, when the GCA was created and will focus on payment delays and payments for better positioning of goods unless in relation to promotions.

A statement said: 'The investigation will consider the existence and extent of practices which have resulted in delay in payments to suppliers.'

This will include the imposition of penalties, consumer complaints, invoicing discrepancies, and deductions for unknown or un-agreed items.

The investigation will also consider suppliers being required to make payments for better positioning of goods.

Ms Tacon said: 'This is the first investigation I have launched and it is a significant step for the GCA.

'I have taken this decision after careful consideration of all the information submitted to me so far.

'I have applied the GCA published prioritisation principles to each of the practices under consideration and have evidence that they were not isolated incidents, each involving a number of suppliers and significant sums of money.'

The adjudicator, who cannot impose a fine, said she would guarantee the anonymity of any suppliers she contacts.

A Tesco spokesman said: 'We have worked closely with the office of the adjudicator since its creation to put in place strong compliance processes.

'Following our announcement last September regarding commercial income, we have worked with her to identify any relevant issues. An internal review we carried out and shared with the GCA identified some areas of concern.

'We have taken action to strengthen compliance and, as we have announced, we are changing the way we work with suppliers.

'We will continue to co-operate fully with the GCA as she carries out her investigation and welcome the opportunity for our suppliers to provide direct feedback.'

Business Secretary Vince Cable said: 'This is an historic day for the Groceries Code Adjudicator and shows we have created a regulator that has real teeth.

'Last week I secured the final agreement in government to proceed with legislation to enable the regulator to impose hefty fines for those supermarkets found guilty of mistreating suppliers.

'I have also agreed an increase of almost 40% in the adjudicator's funding for the coming year so that it can carry out its important work.

'Now that a formal investigation has been launched, I would encourage anyone with any evidence of wrongdoing to come forward and to be confident of being able to do so confidentially as their anonymity will be protected by law.'

Jim Moseley, director-general of the Food and Drink Federation (FDF), which represents food and drink manufacturers, said: 'For the most part grocery suppliers enjoy productive and profitable trading relationships with their retail customers.

'However, should companies raise cases where excessive risk and unexpected costs are passed down from retailers to suppliers, then it is for the Groceries Code Adjudicator (GCA) to investigate.

'FDF supports this office by raising awareness of the GCA's role and passing on anonymised information when empowered by members to do so, and we will support this and all other investigations carried out.'

John Allan, chairman of the Federation of Small Businesses, said: 'We've seen lots of evidence that small firms are being unfairly squeezed by late payments in the food processing industry and other sectors, so we welcome the GCA's investigation. We would encourage the GCA to use its new powers and include the major supermarket chains in the scope of the investigation.

'Late payment can have disastrous effects on a small firms' cashflow and pushes many businesses to the brink. We've raised the issue to the highest levels and have called for a full-scale independent inquiry into the payment practices of big business.

'This needs to be in time for the next government to set our payment culture in the right direction. There needs to be respect in the relationship between big businesses and firms in their supply chains.'

Mark Johnson, of Warwick Business School, who researches supply chains, said: 'The GCA's regulations should go a long way to ensuring that practices in the supply chain become more equitable.

'However, the regulation is only recent and Tesco cannot be fined, only investigated. I will be fascinated to see if Tesco can learn to deal with their supply base fairly after years of inequality and adversarial behaviour.'

Huw Irranca-Davies, shadow food and farming minister, said: 'Whilst it's welcome to see the first evidence of the Groceries Code Adjudicator carrying out an investigation to protect suppliers, this Government has dragged its heels for months on giving the regulator the power to impose fines.

'There are also concerns that we still have no clarity on whether the Prime Minister's promise to review the remit and powers of the Groceries Code Adjudicator will lead to anything being done before the election.'