Tesco profit halved as supplier terms change

Tesco’s half-year results have shown that profits have been slashed by 55% on last year, as the retailer also revealed “simpler” terms for its alcohol suppliers.

Tesco’s supply contracts, including for beer, wine and spirits producers, have changed (Photo: Wiki)

Profits for the first half of its financial year were £354 million, 55% down on the same period last year, when it saw profits of £779m.

However, pre-tax profit is up £74m, compared with last year’s loss of £19m, and volume sales grew marginally by 1.4%.

The UK’s largest grocery retailer in terms of volume – and also its largest alcohol seller – said the results show that its overhaul over the past 12 months is starting to work.

Dave Lewis, chief executive, said: “In the UK, we continue to improve all aspects of our offer for customers, resulting in volume growth which is allowing us to create a virtuous circle of investment.”

Cutting non-core activities, including its activities outside of the UK in Europe and Asia, and focusing on driving profitability of its British business is Tesco’s priority, Lewis said.

Separately, the retailer also revealed new terms are being sent out to suppliers to “simplify” its stock-building process.

It comes after some suppliers, including those stocking the company’s Beer, Wine and Spirits division, complained that its previous contracts allowed for payments to be delayed for too long. Tesco’s calls for some suppliers’ to cut their prices in February also caused a backlash.

Its smallest alcohol suppliers, providing products worth £100,000 or less per year, will now receive payments within 14 pays, Mr Lewis told IGD The Big Debate Conference on Tuesday (6 October).

Larger wine, beer or spirits suppliers will have to wait up to 60 days before Tesco delivers payment. Those supplying under £10m-worth of stock per year will receive payment within 55 days, Tesco said.

“By introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers, it will help us to deliver a fairer, more transparent and consistent approach across our supply-base,” Lewis said.