Tesco investigated by supermarket regulator over supplier conduct
Britain's grocery industry watchdog has opened an investigation into Tesco's relations with its suppliers, dealing a further blow to the battered reputation of the country's biggest supermarket.
The Groceries Code Adjudicator (GCA) Christine Tacon said she had formed "a reasonable suspicion" that Tesco had breached the industry's code of practice and there was evidence the breaches "were not isolated incidents, each involving a number of suppliers and significant sums of money".
The GCA is being given powers to fine supermarkets but these will not be in force in time to affect the Tesco investigation.
Any sanctions on Tesco would be limited to legally binding recommendations regarding its future behaviour or "name and shame" measures, such as forcing it to publish apologies in British media.
The probe, the first since the watchdog was established in 2013, comes on top of those by Britain's Serious Fraud Office and the Financial Reporting Council in the wake of Tesco's £263 million ($400 million) profit over-statement last year.
Dr Mark Johnson is Associate Professor of Operations Management at Warwick Business School and a supply chain researcher. He said: “The GCA’s regulations should go a long way to ensuring that practices in the supply chain become more equitable. However, the regulation is only recent and Tesco cannot be fined, only investigated. I will be fascinated to see if Tesco can learn to deal with their supply base fairly after years of inequality and adversarial behaviour. After all, can you teach an old dog new tricks?
“With Tesco suffering in the battle with the discounters Aldi and Lidl, and the cost of running a retail operation now so super-efficient, where can a firm that requires profit go? The option is, unfortunately, to the supply chain where they can seek price reductions for increased profit, receive payments for favourable shelf position or indirectly influence profit by improving their liquidity by delaying payments.
“But at the root of all of this it is not just Tesco. It’s the shareholders who require dividends and the customers who want low prices. Caught in this crossfire are the suppliers who, in many cases, are not powerful enough to fight back.”
Legislation to give the GCA powers to fine supermarkets up to one percent of their annual UK turnover is currently before lawmakers and the government expects its proposals to become law before the general election in May.
However, these proposed financial penalties will not be retrospective and so will not apply to the GCA's probe of Tesco which covers the period from June 2013 until this month.
Tacon's probe, expected to last up to nine months, will examine the existence and extent of practices at Tesco which resulted in delayed payments to suppliers. Her inquiry will also look into payments made by suppliers to secure more prominent places on shelves for goods not on promotion.
Dave Lewis, who became Tesco CEO last September, has announced plans to cut costs and sell assets to tackle the crisis he inherited at Britain's biggest retailer.
Under Lewis, Tesco has acted to strengthen compliance and is changing the way it works with suppliers.
Having discussed the practices with Tesco, Tacon now needs more information from suppliers to determine what further action to take. She called for evidence to be submitted by April 3.
"We will continue to cooperate fully with the GCA as she carries out her investigation and welcome the opportunity for our suppliers to provide direct feedback," Tesco said.
Shore Capital analyst Clive Black, said: "The GCA probe ... feels very much like self-justification by an organisation that has talked much but not actually done anything of note in practical terms.”
Driver shortages: Why the industry needs to be worried
While driver shortages are a global problem, with a recent survey from the International Road Transport Union suggesting that driver shortages are expected to increase by 25% year-on-year across its 23 member countries, the issue has very much made itself felt for UK businesses in recent weeks.
A perfect storm of factors, which many within the industry have been wary of, and warning about, for months, have led to a situation wherein businesses are suddenly facing significant difficulties around transporting goods to shelves on time, as well as inflated operating costs for doing so.
What’s more, the public may also see price rises as a result due to demand outmatching supply for certain product lines, which in turn brings with it the risk of customer dissatisfaction and a hit to brand and stakeholder reputation. Given that this price inflation has been speculated to hit in October, when the extended grace period on Brexit customs checks comes to an end, the worst may be yet to come.
"Steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole"
That said, we have already been hearing reports of service interruption due to lack of driver availability, meaning that volumes aren’t being transported, or delivered, to required schedules and lead times. A real-world example of this occurred on the weekend of 4-6 June with convenience retailer Nisa, with deliveries to Nisa outlets across the UK affected by driver shortages to its logistics provider DHL.
But where has this skills shortage stemmed from?
Supply is the primary issue. Specifically, the number of available EU drivers has decreased by up to 15,000 drivers due to Brexit alone, and this has been further exacerbated by drivers returning to their home country during the COVID-19 pandemic, as well as changes to foreign exchange rates making UK a less desirable place to live and work. This, alongside the recent need to manage IR35 tax changes, has also led to significant inflation in driver and transport costs.
COVID-19 complications have also meant that there have been no HGV driver tests over the past year, meaning the expected 6,000-7,000 new drivers over the past year have not appeared. With the return of the hospitality sector we understand that this is a significant challenge with, for instance, order delivery lead times being extended.
It is little surprise, therefore, that the Road Haulage Association (RHA) earlier this month became the latest in a long line of industry spokespeople to write to the government about the driver shortage for trucks. The letter echoed the view held by much of the industry, that the cause of this issue is both multi-faceted and, at least in some aspects, long-standing.
So, many in the industry are in agreement as to the driving factors behind this crisis. But what can be done?
Simply enough, outside of businesses completely reorganising their supply chain network, external support is needed. In the short-term, the government should consider providing the industry with financial aid, and this can also be supported more widely with legislative change.
Specifically, immigration policy could be updated to place drivers on the shortage occupations list, which would go some way towards easing the burden created by foreign drivers returning to their home countries. Looking elsewhere, government should also look for ways to increase the availability of HGV driver tests after the blockage created by the coronavirus lockdowns.
Looking more long-term, steps must be taken to make a career in the industry a more attractive proposition for younger drivers, which will require a joint effort from government, industry bodies, and the sector as a whole. As it stands, multiple sources suggest that the average age of truck drivers in the UK is 48, with only one in every hundred drivers under the age of 25. We must therefore do more to increase the talent pipeline coming into the industry if we are to offset more significant skills shortages further down the line.
On the back of a turbulent year for the supply chain industry, it has become increasingly clear that the long-foretold shortage of drivers is now having a tangible and, in places, crippling effect on supply chains.
Drivers, and the wider supply chain industry, have rightly been recognised for the seismic role they played in keeping the nation moving and fed over the past year under unprecedented strain. If this level of service is to continue, we must now see Government answer calls to provide the support the sector needs, and work hand-in-hand with the industry to find a solution. If we do not see concrete action to this effect soon, we are likely to be in for a turbulent few months.
Rob Wright is executive director at SCALA, a leading provider of management services for the supply chain and logistics sector