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TescoGate analysis: What next for suppliers and grocery multiples

Published:  15 October, 2014

Wine suppliers call for clarity over where multiples are headed next, as the Tesco scandal claims its first wine executive.

We'll have to wait until next week to learn the outcome of the Tesco investigation into its £250 million accounting blackhole. In the meantime the crisis has claimed its first casualty in the wine department with the suspension of global BWS head Dan Jago. While wine suppliers are recovering from the shock, they are calling out for clarity over where the supermarket, and its competitors, are headed.

As Matthew Dickinson, former commercial director at Thierry's Wine Services put it, we should "expect seismic changes in the way major multiples in the UK sell wine in 2015".

Another supplier says no matter what the outcome of the current investigation, "suppliers now will become a lot more wary and careful."

Tesco new drinks fixtureWine suppliers want greater clarity over where retailers are headedTesco's accounting crisis has thrown the issues around wine supply at the major multiples into sharp focus

Before the news of Jago's suspension broke, most suppliers contacted by Harpers said they did not believe wine was a major focus for the investigation. While admitting that supermarket buyers negotiate hard, they said it was up to suppliers to push their own agenda and secure the best deal for them. They all agreed that no-one is ever under pressure to agree to supply if a deal doesn't work for them.

This time around one supplier said: "I wouldn't have thought wine would be the main culprit," although its lack of major corporations and their associated contracts may have made it easier for "wheeling and dealing".

Dickinson predicts a "big change is coming to all major retailers". "All of the major multiples are on record saying 'we're struggling with our model when competing with discounters'".

As for Tesco's current problems, he said the suspension showed there was an issue and it was working to "sort it out". But he added, "I can't believe that would affect how they retail wine, pulling forward money is a Tesco issue, not just wine."

"It's almost like a red herring in some ways. [The main issue is] how do they retail wine more effectively and make sufficient margin. This issue distracts from the main event."

Richard Cochrane, general manager of Felíx Solís UK, said suppliers are seeking reassurances around integrity of retailers. He gave the example of many retailers' routine use of auditors to check through emails going back up to seven years to ensure everything that could be invoiced was invoiced. However, Aldi recently told its suppliers it would not do this, and instead would close its books at the end of year. Such a move gives suppliers confidence and is an act of good faith.

"It's a very admirable stance", Cochrane said. "What's playing through British retail right now is not whether you negotiate a hard deal, but whether you do what you say you will do and stick to it."

Another supplier said "real clarity of purpose" was "absolutely vital" given the current changes in the retail landscape. Retailers have to understand how to make their customers happy, and how to keep them happy.

While discounters are continually in the news from their fast-rising profits, and the supermarkets cast about looking for way to match their prices, there is a clear lack of vision for what should happen next among the major multiples. "Retailers are at their best when they're leading the market," as opposed to swapping strategies to match others. "Trust is crucial," he added.

Still in shock

Overwhelmingly, the mood among suppliers following Jago's suspension is one of shock. All of those spoke to say they had a good relationship with him, and respected what he had done for the wine category.

Robin Copestick, co-founder of supplier Copestick Murray, said: "Obviously I have no idea what is happening behind the scenes at Tesco but I find it incredible that this is happening. You do wonder where and when this will end."

Others also questioned how much further, and lower, the investigations will go - although the fiduciary duties of a director are different to an employee - meaning that they are likely to stop at director level, unless employees are found to have acted outside of what the business asked them to do.

Jago on suppliers

In an interview with at the end of 2012, Jago said he had so far not met his perfect supplier. He said:  "It's my job to always keep pushing. That's probably the bit of my job that I enjoy most - seeing if I can stretch their boundaries a little bit. Nobody's ever 10 out of 10 in anything, in my world, unfortunately. We can always improve."

At the time he said suppliers had to present a more professional front by knowing the retailers' business inside out.