The retailer had the most improved supplier relationships for the third successive year in a June survey by the groceries code adjudicator. ©Tesco PLC
The retailer had the most improved supplier relationships for the third successive year in a June survey by the groceries code adjudicator. ©Tesco PLC

Tesco suppliers 'accessing faster sales growth'

4 October 2018

Tesco suppliers are reaping the benefits of a positive six months following the company’s merger with wholesaler Booker, according to the retailer.

The supermarket giant, which has released its interim half year results, said suppliers were profiting from faster UK sales growth generated by the deal.

A 13% year-on-year rise in sales to £28.3bn, coupled with a 24% growth in operating profit to £944m, was also heralded as “a good start to the year” by chief executive Dave Lewis, who has overseen 11 consecutive quarters of growth at the company.

Suppliers are “now accessing faster UK sales growth,” the report said, which is in part down to a 14.7% rise in like-for-like sales in elements of the company such as Londis and Budgens that used to be owned by Booker.

Tesco said joint Tesco Booker terms have now been agreed with the top 60 suppliers and it has also granted 12-month contracts guaranteeing above-market prices for 1,600 UK beef farmers, after creating its 10th sustainable farming group.

The report pointed out the company had the most improved supplier relationships for the third successive year in a June survey by the groceries code adjudicator (GCA).

Lewis said he was “delighted with performance so far” on the Booker merger, and that the company was “firmly on track to deliver our medium-term ambitions”.

“In doing so, we are well-positioned to deliver strong, sustainable returns for shareholders," he added.

The report represents a sharp turnaround since Tesco fell foul of the GCA in 2016 after it “seriously breached” rules to protect suppliers.

Following an investigation, GCA Christine Tacon said between 25 June 2013 and 5 February 2015 the company “acted unreasonably” in delaying payments to suppliers, “often for lengthy periods of time”.

One supplier, owed a multi-million pound sum as a result of incorrect pricing by Tesco, had to wait more than two years to get paid back.

Tacon also had concerns about the supermarket making “unilateral deductions from suppliers” and in some cases causing “an intentional delay in paying suppliers”.

The results come amid fierce competition from all sides, with a proposed Sainsbury-Asda merger set to trump Tesco’s leading 27% market share, while Aldi and Lidl snap at its heels in the discount sector, making joint gains of 4.8 percentage points since 2015, now at 13.1%.

Tesco subsequently launched its own discount chain, Jack’s, last month. The new brand buys from 358 of its parent company’s existing suppliers, offering 1,800 products, most of which are sourced from the UK, in a bid to rival the European discounters.

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