Supermarket giant Tesco “seriously” breached an industry code by delaying payments to suppliers, an investigation has found.
The long-awaited report on the retailer’s practices revealed it had “intentionally delayed” paying suppliers.
Groceries Code Adjudicator (GCA) Christine Tacon made a series of recommendations to stop the practices, saying the group should be more transparent in its dealings with suppliers.
No financial penalty was imposed because this power was only given to the adjudicator after she launched her investigation.
Her 84-page report said Tesco had breached the legally binding code aimed at protecting groceries suppliers.
“I found that Tesco knowingly delayed paying money to suppliers in order to improve its own financial position,” she said.
“The length of 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.”
One supplier was owed a multi-million pound sum because of price changes being incorrectly applied to Tesco systems. The money was eventually paid back by Tesco more than two years after the incorrect charging had started, said the adjudicator.
Tacon launched the investigation – her first – last February following Tesco’s announcement about its profit overstatement.
She said she found delay in payments arising from data input errors, duplicate invoicing, deductions to maintain Tesco’s margins and unilateral deductions.
“The sums were often significant and the length of time taken to repay them was too long,” she said.
A four-week deadline has been set for Tesco to say how it plans to implement the recommendations.
Andy Willox, Scottish policy convenor at the Federation of Small Businesses, said: “The issue of late payment plagues Scottish small firms. Today’s report into Tesco’s past treatment of its small suppliers lifts the lid on the UK’s late payment culture.
“For too long, larger firms have been free to abuse their relationship with smaller suppliers. Tesco has since apologised, and improved its terms. We need to see more company boards taking responsibility for their payment terms, and choosing to get behind their small suppliers no matter whether they’re based in Durham or Dundee.”
Tacon said she found no evidence that Tesco asked suppliers for money to secure better positioning of goods on shelves, which would have breached the code. But she expressed concern about practices that could amount to an indirect requirement for better positioning by large suppliers.
“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 or to participate in range reviews.”
The adjudicator said in her report: “I saw numerous instances when data input errors by Tesco into its systems resulted in suppliers being overcharged or underpaid.
“Tesco failed to rectify data input errors within a reasonable time and also failed to pay money owed to suppliers as a result of these errors within a reasonable time. The frequency and scale of the issues resulted in business practices which were unfair.”
The investigation uncovered reluctance of some Tesco buyers to engage into disputes to resolve payment issues.
“There were times when Tesco did not appear to even attempt to resolve supplier concerns before unilaterally deducting money from suppliers. I found the delay that resulted from a failure by Tesco to fully engage in resolving difficulties to be unfair and unreasonable.”
Business minister Anna Soubry said: “Christine Tacon has done a thorough and fearless investigation into a scandalous situation.
“Tesco say they have changed their practices and I very much hope they have. Paying smaller suppliers on time and treating them fairly is good and proper business. Late payment can hinder the growth and productivity of these suppliers and can threaten their existence.”
Tesco chief executive Dave Lewis apologised and said he accepted the GCA’s findings.
He said: “In 2014 we undertook our own review into certain historic practices, which were both unsustainable and harmful to our suppliers. We shared these practices with the adjudicator, and publicly apologised. Today, I would like to apologise 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 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.”
He added that, according to Tacon’s report, the overwhelming majority of Tesco’s suppliers were more positive towards the company now compared with the period under investigation.