Tesco’s efforts to repair brand image take a knock as watchdog finds it knowingly delayed payments to suppliers
The substantial efforts Tesco has made to improve its brand image have taken a knock as a formal investigation into the £263m accounting scandal concluded today (26 January) that the retailer “knowingly delayed paying money to suppliers in order to improve its own financial position”.
The investigation began last February after a £263m black hole was found in its account, arising from the way in which it was reporting income from its suppliers.
The Groceries Code Adjudicator (GCA) found that the retailer had acted unreasonably.
“I was also troubled to see Tesco at times prioritising its own finances over treating suppliers fairly,” said Christine Tacon, who led the investigation.
The GCA raised concerns for how Tesco negotiates with suppliers – for example, Kellogg’s, Pernod Ricard, P&G – to decide how they will be positioned on supermarket shelves.
While the investigation found that Tesco had not “required suppliers to make payments to secure better shelf positioning or an increased allocation of shelf space” (which would be in breach of the Code), there was evidence of practices that could amount to an indirect requirement for better positioning.
Tacon explained: “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, category captaincy or to participate in range reviews.
“I have decided to launch a formal consultation with the sector, involving both retailers and suppliers, to help me reach a firm conclusion on whether these practices are acceptable.”
Tesco has now been told to introduce significant changes to its practices and systems, such as providing greater transparency and clarity for suppliers. It has been given a four-week deadline to outline how it will address the GCA’s concerns.
Responding to the findings, Tesco chief executive Dave Lewis apologised and said that while he accepted the reports findings, over the last year it has “worked hard to make Tesco a very different company from the one described in the GCA report.”
“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 said.
Tesco will now be hoping that findings of the investigation don't negatively impact its ongoing efforts to re-establish the brand among consumers. Marketing boss Michelle McEttrick said last year that trust was still “a big issue for Tesco” despite it dismissing a number of top-level executives and investing heavily in improving the in-store experience in wake of the scandal.
Of late, it started to pay closer attention to recallibrating the brand through maketing with the roll out of its first major campaign at Christmas. It appeared to resonate given the retailer’s positive trading figures for the quarter.