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TescoGate: Retailers will take greater care of suppliers now "genie" is out of bottle

Published:  22 October, 2014

The TescoGate accounting crisis means retailers will take greater care in their dealings with suppliers, now the "genie is out of the bottle", experts have told

A number of suppliers and industry experts say there will be greater visibility around transactions, and that currently major suppliers would be looking to minimise their exposure to complicated deals.

Tesco is expected to reveal the results of its investigation into the £250 million overstatement of profits tomorrow, along with its interim results.

Tesco BWSTesco's BWS category has come under scrutiny following Dan Jago's suspensionSuppliers will be checking their exposure to complicated deals, given the current Tesco investigation.

Tim Wilson, managing director of the Wilson Drinks Report, told "There is massive pressure to keep on delivering year-on-year growth. The temptation might be to reorganise the year in terms of when payments are accounted for, increasing the risk of systemic abuse of accepted accounting principles. Whilst the buyers were responsible for perhaps increasingly complicated trading terms, it is the finance team that should manage the correct payment of conditional rebates. It's not just the buyers that are in the dock."

He said that a major part of the ongoing Deloitte and Freshfields investigation would be around conditional deals - such as Tesco receiving additional rebates if sales targets were met for specific wine brands.

He said documents and emails would have to show "conditions had been satisfied and that payments were recognised in the correct accounting year".

Wilson said that he imagined that since the Tesco news broke, senior executives at big suppliers in most categories would have been asking for internal reports on all major deals in order to check their exposure. "It's now about risk management, big-time."

He said tomorrow's announcement around the investigation would not be the "end of the matter" as suppliers will in future probably seek to agree simpler deals, with greater emphasis on enforcing conditions.

One supplier said there would need to be greater visibility around how deals are conducted, not only in multiple retailers but right across buying.

Michael Saunders, managing director of Bibendum, said: "If you do business with Tesco you've got to be prepared for a challenging and robust relationship. That's the buyer's job. They hire people who are very good at procurement."

Jeremy Rockett, former marketing director at González Byass UK, echoed this sentiment, saying: "They [Tesco buyers] were completely fair and upfront, although really tough.

"At the start Gonzalez Byass was quite reliant on the supermarkets with its sherry business - diversifying meant it wasn't overly reliant on one element of the market. When I worked at Marks & Spencer we had a rule that no supplier should supply more than 60% of their business to M&S."

But he warned that "the supermarkets are always going to be around. Tesco has 28% market share - to walk away from Tesco would be mad," he said.

He said suppliers should be engaging more with Lidl, Aldi and independents in the future, given market trends.

Another supplier said Tesco often made it tricky to get paid on time for invoices, which they would query and then tell suppliers to contact their purchase ledger department, based in Bangladesh. Since Bangladeshi working hours do not correspond directly with the UK, this meant payments "take that bit longer". However, if the retailer wanted money from you - it just deducted it instantly from your next invoice. "They were collecting money before paying it out."