Dave Lewis

Tesco’s Dave Lewis. Credit: Ben Gurr/The Times

A leading supplier to Tesco claims “desperate” buyers looking to fill “huge gaps” has seen them artificially bring forward the signing off of payments worth tens of millions of pounds.

As new Tesco CEO Dave Lewis vowed to investigate a potential overstatement of first-half profits by £250m – a move that last week wiped £3bn off Tesco’s share price – the supplier said that though some practices had been widespread at Tesco for years, the pressure on buyers following a dramatic deterioration in Tesco’s trading in recent months had become intolerable.

“I know of several buyers who have been asked to make up such gaps because their colleagues in other sectors have fallen massively short.

“We are talking about absolutely huge gaps to close and I cannot overstate the amount of pressure Tesco buyers have been under.

“Fundamentally Tesco has been robbing Peter to pay Paul and now Peter has run out of money.”

The source said his company, a major global fmcg operator, had been approached many times by Tesco buyers to say they would be bringing forward accruals for supplier payments for promotional activity to help fill gaps in the budget.

“There have been numerous examples of Tesco buyers coming to us and saying they have to fill gaps in the books, which sometimes run into tens of millions.”

David Sables, CEO at sales negotiation experts Sentinel Management Consultants, said some of his clients had also noticed Tesco buyers exerting significantly more pressure, and demanding bigger sums than normal in recent months, though he too believes a lot of this is merely “an extension of what was always going on”.

“Tesco have been upping the ante in the last six months. When Tesco asks for £80,000 for a listing fee or gate fees, that’s fair enough. But when someone says ‘give me £4m or I will delist three of your lines’, that smacks of desperation.

“The aggression and audacity has reached a new level, it’s been a blunderbuss approach, to ask for anything: listing fees, delisting fees, demanding money they haven’t earned on overrider fees. They’ve been rattling the tin as hard as they can. It’s born of desperation, but for the most part, it isn’t illegal.”

One supplier said while he was aware of Tesco buyers accelerating payments, he believed it was a “fair practice” that “had been going on for years.”

“Everybody has done it and done it in line with accountants telling you how far it can be stretched within the parameters of the law.

“If Tesco have stretched things, so long as that reflects the deal over a 12-month period I don’t really see a problem with them bringing it forward on the books.”

A supermarket CEO added that while teeming and lading was common  accounting, balancing the books required rigorous financial oversight.

“This has been a feature of the industry for years. When 30% to 40% of all sales are on deal, that means to a large extent sales are off invoice.

“Sometimes these payments can exceed annual profits. So it’s extremely important there’s real rigour in the allocation. If the system is robust, you should be able to see clearly what period a payment or deduction relates to.”

‘Project desperation’

But Sables said he was not convinced this was only a matter of sloppy accounting, and that he had also heard examples of requests for trigger payments ahead of the sales that are supposed to trigger them. 

“Estimating the extent of the uplift ahead of the sales is taking it to a whole new level. I just don’t see how you can justify that. And it’s even harder when its trading performance is deteriorating at the extent to which it is.

“It’s Project Desperation. It could not have come from just pulling forward gate fees,” Sables added.

With Lewis vowing to address Tesco’s “culture, processes and proposition”, suppliers were agreed the arrival of Unilever veteran Lewis at the helm could have been very significant in the issues coming to light.

“I think this is him trying to get every single skeleton he can out of the cupboard,” said one major supplier.

“This would have been going on at a buyer level and if you think how many buyers there are in Tesco it doesn’t take much for deals to add up to that £250m figure.”

Another supplier source added: “I think this could be the start of a new era of transparency and that would be good news for Tesco and the industry.

“Perhaps the new man thinks Tesco should make its money by putting products on shelves and selling them.”