ISSUES
: Business and Trade
Chapter 2: Corporate responsibility
27
Tesco delayed payments to suppliers to
boost profits, watchdog finds
Groceries code adjudicator finds supermarket failed to pay back multi-million pound sums
owed for up to two years, but regulator is unable to levy fine.
By Sarah Butler
T
he grocery market watchdog
has ordered Tesco to make
“significant changes” in
the way it deals with suppliers
after finding the supermarket had
deliberately delayed payments to
boost its profits.
Christine Tacon, the groceries
code adjudicator (GCA), said
Tesco had seriously breached the
legally binding code governing the
grocery market. She said some
suppliers had to wait two years
for millions of pounds owed by the
grocer.
However, Tacon is unable to fine
the supermarket as the breaches
took place before her power to levy
fines came into force in April last
year.
“I was troubled to see Tesco at
times prioritising its own finances
over treating suppliers fairly,”
Tacon said.
She added that she had seen
internal
e-mails
suggesting
payments should not be made
ahead of a certain date in order
to avoid missing targets promised
to City investors. In some cases
this occurred despite suppliers’
requests for payment, at other
times it was with their consent.
“The pressure on buyers and
finance teams to meet margin
targets was the overriding pressure
within the business. It was
widespread. It was everywhere,”
she said.
Tacon also criticised the company
for unilaterally making deductions
from invoice payments. Even when
Tesco acknowledged a debt,
Tacon said that on some occasions
the money was not repaid for more
than a year, or as long as two years.
The adjudicator launched the
investigation in February last
year after Tesco admitted it had
overstated profits in a scandal that
has also led to a Serious Fraud
Office investigation.
Dave Lewis, Tesco chief executive,
who joined the business in
September 2014 just a few days
before the accounting scandal
emerged and was in post for
only four months of the period
investigated by Tacon, apologised
to suppliers and said the retailer
had now “fundamentally changed”.
“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 [under former
boss Phil Clarke] had damaging
consequences for the business and
our relationship with suppliers,” he
said.
Tacon said Tesco had “acted
unreasonably” by delaying payments
to suppliers, often for lengthy
periods and sometimes deliberately
to support its profits ahead of
key financial reporting periods.
For example, a list of methods for
meeting a half-year profit target
seen by Tacon included “not paying
back money owed”.
She considered Tesco’s breach of
the code to be serious because of
the varied and widespread nature of
the delays in payment.
“The most shocking thing I found
was how widespread it was. Every
supplier I spoke to had evidence of
delays in payments,” Tacon said.
One supplier was owed several
million pounds as a result of price
changes being incorrectly applied
over a long period, but Tesco took
two years to refund the money.
“The sums were often significant
and the length of time taken to repay
them was too long,” she said at the
launch of her 60-plus page report.
While in some cases the delays
were due to deliberate policy,
