‘Fundamental’ changes to the way it does business with suppliers contributed to Tesco's £6.4...

Paul Snell is managing editor at Supply Management
22 April 2015

Changes to the way Tesco deals with its suppliers were partly to blame for the retailer’s £6.4 billion pre-tax loss announced today.

The group’s preliminary results for the 2014-15 financial year stated: “The fundamental change to the way we do business with our suppliers, with significantly less focus on commercial income, further impacted profitability.”

The supermarket made a group trading profit of £1.4 billion, but one-off charges of almost £7 billion, including £4.7 billion related to the company's property, pushed the retailer into the red.

Chief executive Dave Lewis said in a statement: “We are making deep changes to the way we organise and run our business, with a simpler, more agile office team, more colleagues serving customers and a new approach to the way we work with suppliers.

“I do not underestimate how difficult some of these changes have been for the team and I thank everyone for their professionalism and contribution at this time of great change.”

In the results the retailer had to account for commercial income that had been recognised in previous accounts that led to overstated profits. In February, sector watchdog the groceries code adjudicator launched an inquiry into the supermarket’s treatment of its suppliers, in relation to the practices associated with this overstatement.

The results said the group had undertaken a fundamental review into the wide range of payments it has with suppliers, including fees contributions, discounts, multiple offers and volume rebates. It currently has 20 categories of variation in payment terms.

The retailer said it was taking a number of steps to reverse the poor financial performance. This included meeting with 100 suppliers to create cost efficiencies in the supply chain, savings £250 million a year, and an “increased focus on building longer-term, mutually beneficial partnerships with our suppliers”, which included the launch of a supplier helpline to deal with queries from vendors last month.

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