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Tesco in bid to scrap controversial supplier fees

Published:  15 December, 2014

Tesco is planning on scrapping its complex system of supplier fees in a move that could shake up the grocery sector.

Tesco is planning on scrapping its complex system of supplier fees in a move that could shake up the grocery sector.

Last week the embattled supermarket chain released a profit warning saying its full-year trading profit will not exceed £1.4 billion - 20% lower than analysts' expectations. 

The supermarket said at the time it had "implemented new policies and procedures" and taken unspecified actions to invest in its customer offer. The £1.4 billion profit warning for FY 2015 follows FY 2014 profit of £2.26 billion.

It now seems that part of the changes the group is planning on making include doing away with the practices of asking suppliers for payments to support listings. Chief executive Dave Lewis wants the strategy overhaul to bring about lower prices for the retailer.

Speaking to the Mail on Sunday, David Sables of Sentinel Management Consultants, said: "This is a defining moment for the shopper. Supermarket pricing has become a heap of smoke and mirrors. And for all the effort and the millions and millions that goes into it all, the customer often goes home with little more than an extra bag of sugar."

But Sables said he unconvinced the supermarket would do away with all of its demands from suppliers over fees for promotions.

Speaking last week Tesco chief executive Dave Lewis said: "Our priorities remain restoring competitiveness in the UK, protecting and strengthening the balance sheet and rebuilding trust and transparency."

Since the £263 million shortfall in profits was announced, alongside details of Tesco's accounting practices, suppliers have told they are now "a lot more wary and careful" in their dealings with the major multiples. The suspension of global wine director Dan Jago showed intensified how deals were done in the wine and spirits sector.

Richard Cochrane, general manager of Felíx Solís UK, told in October that suppliers were seeking reassurances around integrity of retailers.  "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."