Comment: Tesco can forget a quick fix

Martin Flanagan. Picture: Fiona Hanson/PA

Martin Flanagan. Picture: Fiona Hanson/PA

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THE cascade of problems goes on and on at Tesco, Britain’s largest supermarket group. There was the £263 million overstatement of profits last summer, largely due to improper practices in booking supplies from, and payments to, suppliers.

There was the major upheaval in the boardroom, with chief executive Phil Clarke and finance director Laurie McIlwee ousted and a new broom, Dave Lewis, brought in from Unilever. Clarke had made a decent start, with a spring clean of the business, including the closure of head office, non-core business sales and non-performing stores to be shut, plus strong price promotions.

And for all that Tesco is being investigated by both the Serious Fraud Office and the Financial Reporting Council for the practices that led to the embarrassing events of last summer.

That would be more than enough for any FTSE 100 company to have on its plate. But late last week, Tesco found out that it is also being investigated by the grocery industry watchdog, the Groceries Code Adjudicator.

The adjudicator, Christine Tacon, is looking at the group’s treatment of its suppliers, as stories are also surfacing, mainly from unnamed sources, about a “bullying” culture at the company.

It must be a real setback for Lewis after his moment in the sun with a much better trading performance from Tesco – even though sales are still falling – than the City had expected. Tacon has urged suppliers to come forward if they have evidence of breaches of customary practice by the supermarket giant, which in recent years has had a history of profit warnings as competition ramps up from value supermarkets like Lidl and Aldi.

I doubt that Tacon will have much difficulty in finding suppliers who believe Tesco under previous management stretched the ethical rules, even if not actually breaking them.

It is understood penalties were levied when Tesco claimed items were missing from supplier deliveries; there are allegations of delays in refunding suppliers when it incorrectly issued duplicate invoices; and it is suspected of making charges to suppliers for in-store promotions that were either incorrect or not agreed.

It is the major cumulative effect of all these separate inquiries from different investigators that suggests Tesco’s attempts to regain credibility will be a long-haul, not some one-year wonder of a turnaround.

The one good thing is the company is not in denial about it all. Lewis and his board have been transparent about the need for rocks to be turned over and the glare of independent eyes to be laid on what lies underneath.

Of all the inquiries, the one by the Groceries Code Adjudicator is probably the most lightweight. It is unclear that there are substantial real penalties it can make.

But it is a mark of how widespread the disillusion with Tesco has become that the latest probe has been launched. «

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