TescoGate latest: Suppliers reel from Jago suspension

By Gemma McKenna

Published: 15 October, 2014

Tesco wine suppliers are reeling and calling for steps to be taken to bring confidence back to the supply base following the news that global BWS director Dan Jago has been suspended.

Dan Jago Tesco's suspension of global BWS director Dan Jago has sent shockwaves through the supply base

Jago is one of three directors suspended yesterday as investigations into the supermarket's £250 million profit overstatement step up a gear. The retailer has tasked Deloitte accountants and Freshfields lawyers to investigate the issue, and will report back next week (October 23).

A broad line up of suppliers told Harpers.co.uk they were shocked at the news of Jago's suspension and questioned what impact it could have across their dealings with all multiple retailers.

One supplier said "everyone else in other supermarkets will be starting to brick themselves now" and would be going through their books closely. "If they're not they should be," he added.

On September 22, Tesco's statement to the London Stock Exchange said the profit overstatement was "principally due to the accelerated recognition of commercial income and delayed accrual of costs". In other words Tesco was paying suppliers later and taking monies earlier than it should have.

While many are shocked, they are not surprised, given, as one supplier put it, "we know the wine department has been doing what they are talking about".

Two former retail buyers told Harpers.co.uk there was "nothing underhand" about how deals were done. Another supplier said there was "nothing dodgy" in how Tesco handled deals. "Listing fees are one thing, but they were quite strict about accounting happening in the right period. There was nothing untoward - just tough bargains."

But he suggested that since wine is one of the most expensive products in a supermarket, and runs big promotions, "there could be a lot of money involved".

Allan Cheesman, former head of beers, wines and spirits at Sainsbury's, posted a comment on Harpers.co.uk saying: "Obviously dealing with the majors there will be lots of money involved and doubtless complex deals, promotions and volume targets all agreed in joint business plans and documented."

One supplier said that in its dealings with Tesco it always budgets extra when calculating costs, as the supermarket always asks for more. He added that it is sometimes overcharged on invoices and spends the next few weeks and months asking for its money back. But, he said, this is a fraught path as it leads away from a conversation about innovation and new products to one pleading for monies to be returned.

Tesco

Next steps

Bernard Fontannaz, founder of Origin Wine, said the news of Jago's suspension was "amazing". He also questioned where the investigations would end. "It's one thing to investigate, but you have to keep the business going and try to recover market share."

He said the investigation was a "normal part of due process" but that Tesco needed to work on "defining its strategy" given the current uncertainty which surrounds it.

"Whatever comes out of this - it will set a precedent, and not only for Tesco."

Robin Copestick, co-founder of Copestick Murray, said he hoped "Tesco sort this out as quickly as possible. It is unsettling for Tesco PLC, their employees and their suppliers".

Richard Cochrane, general manager of Felíx Solís UK, said suppliers are seeking reassurances around retailer integrity across the board. "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."

Matthew Dickinson, former commercial director at Thierry's Wine Services, told Harpers.co.uk he felt 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'".

Posting a comment on a story on FT.com, Trecar, identifying himself as a Tesco shareholder, said: "Would the Chairman mind giving us shareholders some form of comfort that someone has the semblance of an idea about what they are doing."

Check out our special report on multiple/supplier relations uncovered here.

Check back later for our analysis on what's next for retailers and suppliers.

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