Tesco calls on wine suppliers for added payments as Grocery Code Adjudicator starts inquiry

By Richard Siddle

Published: 06 February, 2015

In the last 24 hours Tesco has issued two separate requests for wine suppliers to pay effectively the same additional payment for increased sales volumes they have received for their products following its recent product cull.

Tesco TescoTesco

Initially Tesco's wine division sent out an email yesterday to certain wine suppliers requesting they pay £10 per "cases/facings" for extra sales following its range review.

It has now, following a request by Harpers to comment on its original email, sent out a clarification email this morning to the same wine suppliers stressing the request is for "clearance support".

In the original email yesterday, which was leaked to Harpers.co.uk, a Tesco buyer had written to a supplier listing the products it had received "additional volumes in cases/facings" for and was now "writing to you to request additional support" calculated at £10 for each extra case/facing.

The buyer states in the original email yesterday that as part of its "rationalisation process" Tesco had "cleared through a significant amount of stock at a large cost". The supplier, in turn, had "benefited from these changes" and "should have seen additional orders to cover this".

Hence due to the suppliers' "increase in volume and brand visibility" the buyer was writing to them "to request additional support for 2014/15". Calculated at £10 per additional case.

Clarification email

Tesco has subsequently sent out a clarification email this morning to the same suppliers stressing the "support" it is requesting is to "help clear stock for the remainder of the 2014/15 year" .

It makes clear in the second email that the "support is based on a proportion of our fair and reasonable costs of completing the clearance" a "clearance" that "benefits both of us through increased volumes due to the increased space available for your other products".

In response to a Harpers request first thing this morning to clarify its position following the release of the original email yesterday, Tesco sent this reply.

"The Tesco wine team understood that suppliers may have misinterpreted the meaning of the original initial email, so the request was followed up with further clarification.

"The email was a request to wine suppliers only and not to all suppliers."

When Harpers asked Tesco if the original "request to ask suppliers to pay £10 a case/facing for products that have been deemed to have acquired extra volume in sales following the range review" Tesco replied:

"There is no question of suppliers being 'deemed' to have acquired more space, we have in fact increased orders on the lines which remain in the range, so suppliers are seeing the benefit.

"The team will be calling all suppliers to discuss the email and invite for any suppliers with concerns to pick up the phone to talk through with their relevant buyer.

"Angry" and "flabbergasted" suppliers

Christine Tacon Christine Tacon

Wine suppliers that have contacted Harpers said they were "flabbergasted" and "angry" when they first received Tesco's original email.

They were particularly angered that the request came on the day that the Grocery Code Adjudicator formally announced it was launching an investigation in to Tesco's trading practices.

An investigation that adjudicator, Christine Tacon, told BBC Radio 4's Today programme yesterday morning came about because she had "reasonable suspicion that Tesco (had) breached the code in two areas". Adding: "One is reasonable payments and second is payments for better positions on shelf outside promotions."

She also confirmed on air that wine was one of the areas that she "frequently" heard there were "issues" about.

Adjudicator calls on suppliers

Tesco

She also called on suppliers to come forward and share such information with her. She said: "I can legally require suppliers to give me the information I want for an investigation. I have a legal duty to protect their anonymity. And in this case there is very much safety in numbers and I frequently hear about the same issues from every sector in groceries from toilet rolls, to apples, to wine. I'm just looking for a large amount of evidence and anonymity will be protected."

Suppliers that contacted Harpers were concerned that Tesco's original request could have been in breach of the Grocery Code. In particular its section regarding promotions (part 5, number 12) the code states: "A retailer must not directly or indirectly require a supplier to make any payment in order to secure better positioning or an increase in the allocation of shelf space for any grocery products of that supplier within a store unless such payment is made in relation to a promotion."

But a spokesman for GCA said the original request from Tesco was a "grey area" for the code in that retailers are entitled to "request" additional payments. The crucial factor would be what happened if a supplier turned down that "request" and it then became a "requirement".

Bad timing

On receiving the original email a leading supplier told Harpers.co.uk. "I am so furious about this. It has flabbergasted a number of Tesco's major suppliers. To have sent this email out on the day the Grocery Code Adjudicator has announced its investigation in to Tesco beggars belief."

The suppllier added. "I have in no uncertain terms told them to go away. What really annoys me is that Tesco is trying to cover their own shortcomings by taxing suppliers in this way."

The supplier confirmed it would also turn down Tesco's follow up clarification and request today for the same amount of money.

The supplier was also was highly critical of the decision to bring in the Boston Consulting Group to conduct a further range review.

"What would be nice is if Tesco buyers actually did their job properly rather than get Boston Consulting Group to do it for them. They should stop asking suppliers for additional payments and save money by not employing a management consultancy to do what is effectively their job. Any decent buyer worth their salt can see which SKUs are performing or not."

The supplier said the request was particularly disappointing as it came after a period of time when "Tesco had started to act a lot better and was paying its bills and invoices more quickly".

"But then you are asking a leopard to change its spots. People who have been there for 10 to 15 years are not going to change overnight."

One supplier admitted that in the past they would probably have taken up Tesco's request for additional payment as it might "be an opportunity to get more business from them," but had turned down this request flat as "it has not kept any of its promises over the last two years".

"It is about time Tesco started operating like a proper business."

Another wine supplier said it was "amazing" Tesco would send out such a request at this time. The supplier said it indicated Tesco's "left hand doesn't know what their right hand is doing".

Another said it was "unbelievable" although added he would not be averse to paying more, as long as it was not upfront.

Flawed thinking

David Sables of Sentinel Management Consultants, which advises suppliers on negotiating with retailers, said of Tesco's decision to send out the original email yesterday: "It's flawed thinking to have sent this out today. It looks like Tesco are flaunting their power in front of the Groceries Code Adjudicator."

But he added, the original email had not breached Code guidelines, as only if the supplier refuses to hand over the extra money and is punished for it, is it considered a breach.

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