Tesco has been told to introduce significant changes to practices and systems after the Groceries Code Adjudicator, Christine Tacon, found the supermarket giant had seriously breached a legally-binding Groceries Supply Code of Practice (the Code) to protect groceries suppliers.

Tacon's investigation covered the period 25 June 2013 to 5 February 2015 and in that time she found that the retailer had acted unreasonably when delaying payments to suppliers, often for lengthy periods of time. She began her enquiry into Tesco in relation to practices which came to light during the retailer's own enquiries associated with the profit over-statement it announced in September 2014.

The adjudicator found three issues of particular concern: Tesco making unilateral deductions from suppliers, the length of time taken to pay money due to suppliers and in some cases an intentional delay in paying suppliers. Examples of the poor practice identified included frequent data input errors which resulted in suppliers being overcharged or underpaid by Tesco. The supermarket failed to correct these errors within what Tacon considered  a reasonable time and also failed to pay money owed to suppliers as a result of these errors within a reasonable time. There was also a problem with duplicate  invoices being issued to suppliers, usually relating to promotional activities. Tesco would sometimes deduct both invoiced amounts from the total sum that it paid to suppliers. Tacon found that there were instances when Tesco failed to rectify these errors and repay the money owed to suppliers within a reasonable time.

Tacon produced five recommendations to improve Tesco's business practices:

• Money owed to suppliers for goods supplied must be paid in accordance with the terms for payment agreed between Tesco and the supplier.
• Tesco must not make unilateral deductions.
• Data input errors identified by suppliers must be resolved promptly.
• Tesco must provide transparency and clarity in its dealings with suppliers.
• Tesco finance teams and buyers must be trained in the findings from this investigation.

She has requested that Tesco should report back within four weeks on how it will act on her recommendations.

Tacon said: “The length of the delays, their widespread nature and the range of Tesco’s unreasonable practices and behaviours towards suppliers concerned me. I was also troubled to see Tesco at times prioritising its own finances over treating suppliers fairly.

“My recommendations will deal with the weaknesses in Tesco’s practices during the period under investigation.

“I am pleased that many suppliers have reported improvements in their relationship with Tesco to me since the period under investigation. Tesco has also kept me informed of changes it is making to deal with the issues. This is a demonstration of the impact my role is making. I believe that my recommendations will lead to significant improvements at Tesco and in the sector. ”

The Adjudicator also investigated whether Tesco had required suppliers to make payments to secure better shelf positioning or an increased allocation of shelf space in breach of the Code. She found no evidence of this. However, she was concerned to find practices that could amount to an indirect requirement for better positioning. These practices included large suppliers negotiating better positioning and increased shelf space in response to requests for investment from Tesco, as well as paying for category captaincy and to participate in Tesco range reviews. However, Tacon has launched a formal consultation with the sector, involving both retailers and suppliers, to help her reach a firm conclusion on whether these practices are acceptable.

Ms Tacon has also written to the Competition and Markets Authority (CMA) asking them to consider the issue of category captaincy as well as referring evidence that Tesco may have breached CMA rules by operating without all its terms of supply agreement being in writing – a factor that may have contributed to payment disputes and delays.