Tesco’s travails over the last few months are many and varied. Recently they topped a grocers code adjudicator list for supplier complaints and in a recent survey only Iceland received a lower score from its suppliers, it must be cold there.
For those that operate in this environment I imagine that this comes as no surprise, and to be honest in my experience Tesco are not markedly worse than any of the Big 4. They all appear to operate on the basis that they have all the power and they can break and fix supplier relationships at will, but is the worm turning?
At a recent IGD conference Tesco announced plans to cut payment terms by half for small suppliers in order to begin a new era of “Transparency & Fairness” two words, I suspect, not historically associated with Tesco by suppliers.
Tesco’s smallest suppliers (Sales less than £100,000 pa) will be paid in 14 days which according to Tesco is half the industry standard of 28 days.
Suppliers with sales between £100,000 and £10m will be paid 5 days earlier than industry standard, which varies subject to category.
|
Product category |
Standard number of payment days |
Tesco's new payment terms for suppliers selling less than £10m-worth of products |
Tesco's new terms for suppliers selling less than £100,000-worth of products |
|
Fruit, veg, meat, fish and poultry |
28 |
23 |
14 |
|
Chilled, convenience, frozen and pet care |
35 |
30 |
14 |
|
Dairy |
40 |
35 |
14 |
|
Bakery, grocery, household, health and beauty |
45 |
40 |
14 |
|
Wine, beer and spirits |
60 |
55 |
14 |
|
Clothing and general merchandise |
60 |
55 |
14 |
|
Clothing and general merchandise sourced from overseas |
90 |
Not revealed |
Not revealed |
|
Goods not for resale (procurement) |
45 |
Not revealed |
14 |
This represents clever use of the “Time” variable. Initially to demonstrate differential value, especially to small suppliers for whom cash flow is king, and then in a comparative sense i.e. better than industry standard, and finally in a relative sense i.e. perishable goods paid for before non-perishable.
What’s driving this apparently altruistic behaviour? After all it looks like it’s going to cost Tesco in excess of £230m to fund the changes. In Feb, Tesco emailed its suppliers demanding cuts as a result of the reduction in commodity markets and in typical style they threatened to delist products if suppliers refused to capitulate, this prompted an industry backlash.
Is this a genuine response to that backlash? Have the scales fallen from their eyes? Have they had an epiphany? Have Tesco recognised that negotiation is more efficient when co-operative rather than adversarial? Have Tesco been “Corbynised”? Or is this a PR stunt? None of us really know for sure, the cynics will cry foul and the optimists will be benign.
On the face of it suppliers will secure cash flow benefits and Tesco will help rehabilitate their reputation, but is there more? I’ll leave you with one final thought: Dave Lewis, Tesco Chief Exec also stated "We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make is easier for us to do that." My hunch is that “Innovation” is the strategic mackerel and trading terms the sprat with which to catch it. If it works, a very successful give to get.
Tom Feinson