‘More formal relationships’ in wake of Tesco GCA ruling

Retailers’ relationships with suppliers are likely to be more formal in the wake of the Grocery Code Adjudicator’s ruling on Tesco – which will benefit everyone, suppliers have said.

Tesco has been found to have treated is suppliers unfairly, demanding funds from suppliers to meet its margins and delaying payments for its own benefit (Photo: Wiki)

After a year-long investigation, the Grocery Code Adjudicator this week found the UK’s biggest retailer had seriously breached the grocery code and treated suppliers unacceptably, by deliberately delaying payments in order to meet its own financial targets, and making “unilateral” decisions to deduct money from suppliers without consultation. It also found that payments to maintain margin targets were requested from suppliers.

One of GCA Christine Tacon’s recommendations was for the retailer to provide a detailed plan of how it intends to provide transparency and clarity in its dealings with its suppliers – although she recognised it has already taken steps and that suppliers reported an improvement and more collaborative approach.

One drinks producer told db that one of the implications was a greater level of formality between suppliers and retailers.

“Before, there was a reluctance to put things in writing so that lead to a lot more ambiguity,” he explained. “With a more formal relationship, there is greater professionalism, and that leads undoubtedly to more communication. And if lines of engagement are open, then the situation is much clearer.”

“The decision regarding the category promotion and pricing will be based on insight and evidence, rather than short-term profit,” he added.

Although Tesco was not fined, he added that the fall-out had been ‘punishment’ enough – and this had had a knock-on effect on other retailers.

“I can’t imagine others wanting to go through what Tesco has had to endure and the communication at a senior level is more frequent. So yes, others have got their houses in order too.”

Robin Copestick of distributor Copestick Murray agreed the implications of the ruling had to be good for suppliers.

“Tesco have always been good to Copestick Murray but I have noticed a change in attitude. I think all retailers are now more open and want to be seen to be working together [with their suppliers],” he said. “And the high profile nature of the case has already had a positive nature in the way the retailers are operating so therefore I think the desired effect has been achieved.”

Michael Saunders of Bibendum PLB agreed there had been a “significant” and consistent change in Tesco’s dealings with its suppliers.

“It hasn’t always been an easy ride supplying Tesco – they are a very big and complicated customers, but the approach they’re taking now is very refreshing,” he said. “It is very different to how it was before, there is a lot more consideration and a lot of things that were challenging don’t exist anymore. That’s not say they aren’t demanding to do business with, but right now, the state of play is good.”

In reaction to Tuesday’s ruling, Tesco’s boss Dave Lewis accepted its findings and apologized, as he outlined the ways Tesco has tried to mend bridges with its suppliers since last January. These included restructuring and simplifying the way it deals with its suppliers to build better relationships, and cutting the number of ‘bonus’ charges to suppliers from 24 to 5. From next year, this will only comprise three: volume, premium positioning on the grocer’s shelves, and compensation for items that have to be recalled.

In October 2015 it also announced it would slash the time it took to pay smaller suppliers to 14 days – less than half the industry standard – with larger beers, wines and spirits suppliers waiting 55 days, rather than 60 days as standard.