Stephen Jardine: A tough start to the new year for Tesco
Writing less about Tesco was one of my key New Year resolutions of 2016. We haven’t even left January and it is already joining daily exercise in the box marked “forlorn hopes”.
Even hardened critics might be starting to feel sorry for the beleaguered supermarket giant. It gets harder to put the boot in to the brand every time – until you look at their latest behaviour and realise Tesco really deserves it.
After being embroiled in the horse meat scandal in 2013, the company then discovered a £326 million black hole in its accounts. A collapse in consumer trust led to a 42 per cent slump in the share price from last April.
Given all that, you might think the company would be going out of its way to build trust and affection. However, it has recently been revealed that Tesco deliberately delayed payments to suppliers to boost company profits.
At any time that would be bad, but in the grocery retail environment, which is surely meant to be about supporting local and seasonal suppliers, it is unforgiveable.
The supermarket ombudsman this week ruled that Tesco had seriously breached the industry’s code of conduct, which is intended to protect suppliers.
The Groceries Code Adjudicator Christine Tacon said Tesco had “acted unreasonably” by delaying payments to suppliers ahead of key financial reporting periods.
The practice was found to be widespread, with almost every supplier questioned reporting problems in obtaining payment.
Scottish food and drink production may be in good health, but smaller suppliers still often trade close to the edge in terms of cashflow.
In response, Tesco chief executive Dave Lewis has apologised to producers and promised the supermarket giant has “fundamentally changed” – but the big Tesco bag of excuses is now looking empty.
Tellingly, Channel 4 News could not find a single Tesco supplier this week prepared to go on camera and discuss how the system worked.
The fear of being delisted still hangs heavy over the sector and shows the relationship between supermarket buyer and local supplier remains dysfunctional. Ask anyone who has worked to supply the supermarkets and you hear the same complaints.
For Tesco, the only good news is that their punishment this week has been business shame rather than financial penalties.
But that should be small consolation to Tesco’s finance chiefs. The Serious Fraud Office is in the final stages of its year-long investigation into the brands accounting scandal which saw several executives lose their jobs.
Some believe the SFO investigation could lead to a colossal fine, in the region of £500m. And that is not the end of it. Tesco’s institutional shareholders are said to be lining up to sue the supermarket over lost share earnings in the accounting debacle. That could cost £100m.
What a change in fortunes for Britain’s biggest retailer, which at one time could do no wrong.
Tesco insists the difficult times are now over but any big brand tampers with public trust at their long-term peril. On that basis, the dark days may be only just beginning.