Tesco probe may aid supplier relations

13 October, 2014

Suppliers have had their hopes raised of less one- sided relationships with the major supermarkets in the wake of the controversy over Tesco’s accounts.

The groceries adjudicator has asked for the industry’s code of practice on retailer-supplier relations to be part of Tesco’s own review of the affair.

The supermarket launched the investigation after a £250 million shortfall in profits came to light and it is also being probed by the Financial Conduct Authority. The black hole was the result of Tesco recording income from deals with suppliers earlier than it should and delaying the accounting of costs.

Crawford Spence, professor of accounting at Warwick Business School, said: “Firms quite legitimately play around with their revenue and expenses all the time. However, when they do so aggressively, as Tesco appears to have done, this is usually because the firm is under pressure elsewhere.

“In Tesco’s case, it has been losing market share to its competitors steadily in recent years and losing value quite dramatically in its share price in recent months.

“Rather than fix the underlying problems, it has been playing around with its numbers to try to make things look better.”

The affair has put the treatment of suppliers by Tesco and other supermarkets under intense public scrutiny – a concern that many suppliers have long voiced privately.

In particular, wine suppliers have complained of retrospective claims for promotional costs unearthed by audits carried out months after deals ended.

Steve Barton, managing director of drinks supplier C7 Brands, said: “It has to change. The surprising thing in all this is that it’s taken so long to come to the fore as it’s been common practice for so long.

“There’s only so much cash the retailers can extract out of the supplier base. There needs to be a more realistic trading relationship between supplier and retailer which focuses on what consumers really want – and that doesn’t always mean the lowest price. Ultimately, suppliers have to make money out of the retailers because if they don’t they cease to exist, which is no good to anyone.”

Eight of the 10 major food retailers covered by the Grocery Supply Code of Practice agreed in June to limit searches of their accounts for previously missed claims to two years.

Groceries code adjudicator Christine Tacon said she would act if any unfair treatment of suppliers came to light in the two investigations taking place into the Tesco affair.

“I want to achieve swift progess by informal methods on issues faced by many suppliers, but I also have the power to carry out investigations and impose sanctions, including fines in the most serious breaches of the code,” she said.

She appealed for suppliers to give her hard evidence – including financial and contractual documentation and notes of conversations – and assured them that their identities would be protected.




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