Tesco CEO Dave Lewis has unveiled his blueprint to improve supplier relations - including a dramatically stripped down approach to commercial income and better trading terms for small suppliers.
In an exclusive interview with The Grocer, Lewis said making it easier for suppliers to do business with Tesco was essential to his vision, with simplicity, customer focus and transparency at the heart of Tesco’s strategy moving forward.
“We want suppliers who are partners. Negotiation will always be part of this business. Aggression will not. We want to work in a way that’s sustainable for our business and for our partners. That will mean a whole new way of working.”
The £263m profits overstatement announced in the autumn had identified an increasing reliance on overriders and other so-called ‘back margin’ techniques to claw back more and more commercial income, said Lewis. The new approach placed more emphasis on buyers to achieve the best price up front (ie ‘front margin’) in order to put the customer first. And while Tesco will still expect to receive commercial income it will be “proportionate and fair”, said Lewis. “At the moment there are 24 ways of negotiating elements of back margin. This year we will move to five. But by 2017 it will be three: volume, prominent positioning and compensation for product recalls.”
Tesco will also be more transparent about trading terms. “It will be different by category and by supplier size,” said Lewis. “Any supplier with sales of less than £100,000 will be paid within 14 days. And you will see from us articulation of payment terms in each category and for each supplier, with further work to differentiate suppliers whose sales with us are below £10m.”
Tesco has also introduced this week a new Supplier Helpline to address problems smaller suppliers encounter, including payment delays. Lewis admitted Tesco had made 94.7% of payments to small suppliers on time in the past (versus 99% for larger suppliers). But he denied suggestions Tesco took advantage of smaller suppliers. “There’s a 5% miss, but it’s because of our own internal organisation. It’s not good enough. So we’ve set up the helpline. If you’ve got a problem, a price query, or an invoice that’s gone missing, you can phone the helpline, it’s based in the UK and we guarantee that the product team will solve your problem in 48 hours.”
Matt Davies: “Great guy, great track record”
New UK & Ireland CEO Matt Davies, currently Halfords CEO, is now set to join Tesco a month earlier than expected. Halfords announced on Monday that McDonald’s boss Jill McDonald would join the bikes and car accessories retailer as his replacement on 11 May.
Davies was originally scheduled to join in June, but Tesco is now confident he will join in May, though it was unable to confirm the revised date. Lewis said: “Matt is a great guy, with a great track record in terms of turning around businesses. He’s very much customer-centric in the way he’s turned those businesses round, and he has a value set I admire and appreciate. “Getting the right balance of people who know Tesco well with those who have a slightly different take on how the market might actually work, and with a very strong customer experience, that’s a powerful combination.”