Groceries adjudicator Christine Tacon has ordered Tesco to make changes to its buying practices after her investigation into the supermarket revealed the company had deliberately delayed payments to suppliers, seriously breaching the Groceries Supply Code of Practice (GSCoP).

Tacon launched an investigation into Tesco in February 2015, following an accounting scandal at the supermarket that led to an ongoing investigation by the Serious Fraud Office. The results of the Grocery Adjudictor’s probe, published on Tuesday, show that between June 2013 and 2015 Tesco broke the legally-binding Groceries Code by delaying payments to suppliers and reducing the amounts paid for goods supplied. In some cases money owed was not paid until one or even two years later.

The ombudsperson identified a number of factors which led to farmers being overcharged or underpaid, including data input errors and duplicate invoices which, due to their “frequency and scale,” amounted to “practices which were unfair.” She also said Tesco’s focus on meeting financial targets led to the supermarket requesting payments from suppliers to meet Joint Business Plan targets (negotiated between Tesco and its suppliers) and found evidence from internal emails of Tesco staff seeking to delay payments to producers to ensure targets were met.

Elsewhere, Tesco requested payments relating to historic claims, even after suppliers had made payments which they believed had ‘closed’ previous financial periods, which the Adjudicator said was “unreasonable”. Tacon also said that delays to the resolution of disputed charges (where Tesco had fined suppliers who the company said had failed to meet their performance goals, but who contested the claim) was unreasonable. She also said Tesco “Buyers frequently sought to use money owed to a supplier as leverage in negotiations for future agreements or promotions.”

The ombudsperson was also looking for evidence that Tesco had breached Section 12 of the GSCoP by requesting payments from suppliers to secure better placements or more shelf-space for their produce. She found no direct evidence of this, but said there is some indirect evidence that merits further scrutiny.

Tesco response

In response to the findings, Tesco said it is introducing a Supplier Helpline to help suppliers reach resolutions with the company, as well as improved internal training and monitoring. On Tuesday. Tesco Chief executive 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.”

He claimed, “In January 2015, we made material changes to our business that addressed the majority of the historic practices referred to in the report.”

Tesco has produced a video detailing how it is mending relationships with its suppliers:



Though Tacon said Tesco’s breaches to Section 5 of the Code had been “Serious” and has ordered the supermarket to make policy changes, she was unable to levy a cash fine on the retail giant. Although - after a delay of several years - the office now has the power to fine supermarkets found to be in breach of the Code, this only applies to infractions which occurred after 6 April 2015.

In her report on the investigation, the Adjudicator made the following recommendations for Tesco:

• Money owed to suppliers for goods supplied must be paid in accordance with the terms for payment agreed between Tesco and the supplier.
• Tesco must not make unilateral deductions.
• Data input errors identified by suppliers must be resolved promptly.
• Tesco must provide transparency and clarity in its dealings with suppliers.
• Tesco finance teams and buyers must be trained in the findings from this investigation.

Tesco now has four weeks to produce a plan for implementing the recommendations. The supermarket will also have to produce regular reports on its progress, including information on the number and value of invoices in dispute as well as the length of time it takes to resolve them.

Commenting on Tuesday, Adjudicator Ms Tacon 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.”

“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.”

However she added, “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. ”

Elaborating on the second issue under investigation (Section 12, requesting payments for priority position in stores) she said 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.

Ms Tacon 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.”

She has written to the Competition and Markets Authority (CMA) about a possible breach of its rules in this area.

The full report can be read here.