Tesco's alleged treatment of suppliers is compared to 'practices only seen in The Godfather' as regulator says supermarket giant will face another investigation

MARTIN ROBINSON
5 February 2015
MAILONLINE

Tesco’s alleged treatment of suppliers has been compared to ‘practices only seen in mafia film The Godfather’ as a regulator said the supermarket giant will face another investigation.
It was announced today Britain’s biggest supermarket is facing a new official investigation over allegations it may have been unfairly fining suppliers, docking cash from bills they owed without agreement and sometimes not paying them until long after they were due.
Tesco is also accused of demanding cash from suppliers for better shelf-positioning in its 3,300 stores across the UK.
The Groceries Code Adjudicator (GCA), Christine Tacon, said she has ‘reasonable suspicion’ that the retailer has breached the Groceries Supply Code of Practice, and is encouraging suppliers to come forward and speak to her anonymously about their experiences.
She gave evidence to Scotland’s Rural Affairs Committee today shortly after she announced that she is investigating the supermarket and encouraged other suppliers to speak to her anonymously with any further allegations against Tesco or other retailers.
Representatives from Sainsbury’s, Marks and Spencer and Lidl told the committee that such practices are new to them.
Mike Russell, committee member and MSP for Argyll and Bute, said: ‘They were new to me too. I had only read about them and seen them in films like The Godfather.’
‘We heard from the Grocery Code Adjudicator this morning about her top five issues, which I have to say, having led a sheltered life, made my hair curl.’
Liberal Democrat MSP Jim Hume said: ‘It sounds shocking, if it is allegedly true, of course.’
Tesco is already being investigated by the Serious Fraud Office and the Financial Reporting Council over claims it fiddled its accounts to inflate profits.
The GCA is to spend around nine months considering a number of allegations about the retailer’s treatment of its suppliers and will concentrate on deals over the past year.

The allegations include:
Short deliveries, including imposition of penalties
Consumer complaints where the amounts were not agreed
Invoicing discrepancies such as duplicate invoicing where two invoices were issued for the same product
Deductions for unknown or un-agreed item
Deductions for promotional fixed costs (gate fees) that were incorrect
Deductions in relation to historic promotions which had not been agreed
If suppliers have been required to make payments for better positioning of goods
Ms Tacon told the committee: ‘I’m not launching an investigation based on allegations – I am launching an investigation based on reasonable suspicion.’
She added: ‘For future investigations, a really strong message I want to give to direct suppliers is – I do need more than being told something over a dinner, I do need information and evidence in order to trigger these.’
She encouraged suppliers to come forward with evidence such as emails, contracts or witness statements.
‘I have a legal duty to protect that anonymity of all suppliers involved, so any evidence that I legally require I need that, but it will never get out to the retailer,’ she said.
‘I do encourage suppliers to talk to me.’
The role of the GCA was set up in 2013 to regulate the relationship between the 10 largest retailers and their suppliers. But for the moment its investigation will only involve Tesco.
They have been given the power to levy fines of up to one per cent of the supermarket’s annual turnover.
Ms Tacon said: ‘I have taken this decision after careful consideration of all the information submitted to me so far.
‘I have applied the GCA published prioritisation principles to each of the practices under consideration and have evidence that they were not isolated incidents, each involving a number of suppliers and significant sums of money.’
Ms Tacon also elaborated on some of the suspected practices going on at Tesco.
‘Delays in payments is generally where the supplier has given the retailer goods, the retailer pays for them and then deducts from that invoice for various reasons.
‘The issue that I am looking at is deductions which were not agreed by the supplier for promotions, in some cases duplicate deductions and even some deductions without any errors at all.’
She added: ‘An area that is in my top five issues that I have been working on for 18 months is drop-and-drive, where people, particularly in the chilled chains, will deliver what they believe to be 100,000 units to a retailer depot.
‘They get no proof of delivery, they send an invoice for 100,000 and what they get back is an invoice for the 100,000 less 20,000 which the retailer said wasn’t on the lorry.’
James Bailey, business unit director for packaged goods at Sainsbury’s, said such practices are ‘against the code of practice so we go to strenuous efforts not to breach that code of practice’.
‘They’re not practices we recognise,’ he said.
Tom Hind, agriculture director at Tesco, said: ‘I’m not in a position to comment, given my area of the business.’
A Tesco spokesman said: ‘We have worked closely with the office of the Adjudicator since its creation to put in place strong compliance processes.
‘We will continue to co-operate fully with the GCA as she carries out her investigation and welcome the opportunity for our suppliers to provide direct feedback.’
Tesco CEO Dave Lewis confirms £250m mistake
It came after the worst year in Tesco’s history, which has led to falling sales, profits and a number of damaging scandals. Its shares are worth around half what they were 12 months ago.
It is being investigated by the Serious Fraud Office over whether there was a criminal conspiracy to ‘cook the books’.
The Serious Fraud Office continues to investigate whether there was a criminal conspiracy to improve Tesco’s results over several years.
Tesco also faces a wider-reaching probe into its finances amid suspicions a black hole in its accounts is far bigger than originally stated.
The Financial Reporting Council, the professional body for accountants, wants to formally investigate accounts filed in 2012, 2013 and 2014.
The supermarket originally suggested profits were overstated for the first six months of this year by £250million. However, it has now emerged the true figure was a higher £263million and the problems date back to 2012.
Tesco bosses could face prison if the Serious Fraud Office’s criminal inquiry finds any conspired to cook the books and it suspended eight senior executives in connection with the accounting irregularities.
In 2014 it issued an unprecedented a number of profit warnings, culminating in December’s forecast that annual trading profits will slide to £1.4billion from a predicted £2billion.
The battle between supermarkets has also sparked price war, saving shoppers £182million in deals in the past three months and at least £450million in deals promised this year.
Sales are also falling at their steepest level in four decades and they have issued four profit warnings in the past year.
Its market share and share price have taken a hammering as sales have fallen and millions of customers have flocked to Aldi and Lidl or high-end rivals Waitrose and Marks & Spencer.
Dave Lewis was parachuted in from Unilever in September to take over from Philip Clarke, who worked his way up from the shop floor to CEO, but lost his job over plunging sales and profits.
But last week it was announced that Clarke has enjoyed a bumper day as the struggling supermarket handed out £1.22million in pay to the man who left the company in considerably worse shape than he found it.
Tesco has also paid Clarke’s finance chief Laurie McIlwee £970,880 under the separation agreement. McIlwee resigned in April last year, while Clarke was ousted in July.
Mr Lewis has cut costs and ended many perks for executives, getting rid of Tesco’s fleet of private jets and even stopping his own limousine and he now commutes by train.
This week it has told 2,000 head-office staff that they are lose their jobs under a plan to slash costs and published the location of 43 loss-making stores to close, also threatening 2,000 jobs.
Changes under Mr Lewis also include the shelving of plans for 49 new stores, shutting Tesco’s final salary pension scheme and disposing of its loss-making blinkbox operation selling online videos.

Read more: