The Groceries Code Adjudicator has launched an investigation into Tesco’s buying practices – but whatever the outcome of the probe the retailer will not face a fine.
GCA Christine Tacon said there was “reasonable suspicion” the supermarket had breached the groceries code, which sets out what retailers legally can and cannot do when dealing with suppliers.
Evidence suggested that the alleged breaches were not isolated incidents and each involved “a number of suppliers and significant sums of money,” said Ms Tacon.
But Britain’s biggest supermarket – the first to be investigated by the GCA – will not be fined, said Ms Tacon.
This was, she said, because she was still waiting for the government to pass the draft legislation specifying the amount she could fine and any code breaches would have occurred before this.
“This is the first investigation I have launched and it is a significant step for the GCA.” Christine Tacon, groceries code adjudicator
This is despite the GCA having had the power to fine since it was established in 2013. Government delays in deciding on an upper limit for fines and bringing into legislation, had effectively paralysed the GCA in using her fining powers.
The news will add to the anger of farmers and other food suppliers who have argued the GCA lacked the necessary teeth to deal with the imbalance of power in the supply chain.
The GCA decided to investigate Tesco after reviewing information from trade bodies and a probe by Deloitte into the supermarket’s £260m half-year profit overestimate last year.
This black hole, it emerged, was a result of Tesco delaying recognising income in the form of “contributions” from suppliers (for items like shelf positioning and marketing), while also delaying recognising costs. Some city analysts and experts have suggested this could either be due to Tesco delaying payments to suppliers or delaying the recognition of costs for servicing supplier contributions.
Ms Tacon said she had discussed the practices with Tesco and now needed more information from direct suppliers and others to determine what further action to take.
The investigation will look at breaches of the code related to delays in payments and charging suppliers for positioning of goods unless in relation to promotions.
“This is the first investigation I have launched and it is a significant step for the GCA,” said Ms Tacon. “I have taken this decision after careful consideration of all the information submitted to me so far.”
Responding to the investigation, a Tesco spokesman said: “We have worked closely with the office of the adjudicator since its creation to put in place strong compliance processes.
“Following our announcement last September regarding commercial income, we have worked with her to identify any relevant Groceries Supply Code of Practice issues.
“An internal review we carried out and shared with the GCA identified some areas of concern. We have taken action to strengthen compliance and, as we have announced, we are changing the way we work with suppliers.
“We will continue to cooperate fully with the GCA as she carries out her investigation and welcome the opportunity for our suppliers to provide direct feedback.”
The investigation may extend to other retailers if evidence emerges that suggests they are implicated in these alleged practices too.
The investigation is expected to take between six and nine months and the adjudicator has called for evidence to be submitted by 3 April 2015. It will cover the conduct of Tesco from 25 June 2013 (when the GCA was created) to 5 February 2015.