Tesco faces a probe into suspected breaches of an industry code of practice, the latest fallout from the retail giant's overstated profit forecast. Britain’s Groceries Code Adjudicator said today it will review methods employed by Tesco that caused delayed payments to suppliers. The regulator has evidence that the practises “were not isolated incidents” and that each involved “a number of suppliers and significant sums of money,” it said in a statement on its website.
The probe comes months after the UK Serious Fraud Office and Financial Reporting Council started investigating Tesco’s overstated estimates, leading some analysts to question whether it will have any meaningful repercussions. Created more than 18 months ago, the GCA is not yet empowered to fine retailers, though such a proposal was made to UK Parliament last week.
The latest investigation “feels very much like self-justification by an organisation that has talked much, but not actually done anything of note,” Clive Black, an analyst at Shore Capital, said by e-mail. “We would be surprised to see a material fine.”
Tesco shares were little changed at 228.85 pence at 11:22 a.m. in London.The GCA said it has a “reasonable suspicion” that the 2013 grocery code was breached by Tesco and has discussed the matter with the Cheshunt-based company. It is now seeking more information from the retailer’s suppliers.
Tesco will continue to cooperate with the regulator, a company spokesman said in an e-mailed statement. An internal review of compliance procedures that has been shared with the GCA identified some areas of concern, he said.
The regulator’s announcement comes a week after a proposal was made to UK Parliament that would give it powers to fine grocers as much as 1 per cent of sales for mistreating suppliers.
The proposal was made by Business Secretary Vince Cable, who said today that he has agreed to an increase of almost 40 per cent in the GCA’s funding for the coming year.
“We have created a regulator that has real teeth,” Cable said in an e-mailed statement.
The investigation will consider Tesco’s conduct from June 25, 2013, the date that the GCA was created.
Bloomberg News, edited by ESM.
