Tesco "seriously breached" industry code, UK watchdog says

Supermarket Tesco “seriously breached” a legally-binding code to protect suppliers by prioritising its own finances rather than treating its suppliers fairly, the UK grocery watchdog said on Tuesday.

Following a review prompted by the company’s £326m accounting black hole, the Groceries Code Adjudicator Christine Tacon said Tesco will need to introduce significant changes to its practices and systems.

Tacon, whose investigation covered the period from June 2013 to February 2015, said she 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 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.”

Tacon’s 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.

In addition, the company will need to correct pricing errors within seven days of notification by a supplier and improve its invoices by providing more transparency and clarity to suppliers.

Tesco will also need to put its finance teams and buyers through training on the findings from the adjudicator’s investigation.

The GCA has set a four-week deadline for Tesco to outline how it will implement her recommendations. She will then require regular progress reports from the company.

Tesco accepted the findings of the GCA report, which it said were consistent with its own investigation.

Chief executive officer Dave Lewis said: “Over the last year we have worked hard to make Tesco a very different company from the one described in the GCA report. The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed.

“In January 2015, we made material changes to our business that addressed the majority of the historic practices referred to in the report. We have changed the way we work by reorganising, refocusing and retraining our teams and we will continue to work in a way which is consistent with the recommendations."

Hargreaves Lansdown analyst Laith Khalaf said: “The company is today being censured for the sins of the past, and with a new man at the top it is relatively easy for Tesco to draw a line under previous misconduct.”

In 2014, Tesco suspended four of its executives after the company uncovered an accounting issue that led it to overstate its half year profit guidance by £250m.

Lewis said at the time that he had found out profits were overstated as a result of the "accelerated recognition of commercial income and delayed accrual of costs".

At 1211 GMT, Tesco shares were up 1.4% to 157.80p.