Tesco "regenerating" supplier relations - Just Food
Join Our Newsletter - Get important industry news and analysis sent to your inbox – sign up to our e-Newsletter here

Tesco “regenerating” supplier relations

08 Jan 2015

Tesco has said it is focused on “regenerating” relations with suppliers through “new commercial income guidelines” and associated year-end cash management.

Speaking during a meeting with analysts today (8 January), CFO Alan Stewart said: “The first [topic] we want to talk to our suppliers about is cash.”

The company is likely looking at how to simplify its complex system of payment calculations, currently based on various performance targets and supplier penalties, Conlumino’s George Scott told just-food. “They have been well-known for operating a very complex system with regard to supplier payments,” he noted.

The system contributed to the recent accounting scandal that resulted in the departure of its CEO, CFO and chairman as well as a number of other senior executives. In October, Tesco revealed a GBP263m (US$424.6m) black hole in its books relating to payments from suppliers – so called “commercial income” – and how these have been recorded.

As well as trying to increase supply chain transparency, Tesco’s new management team under former Unilever executive Dave Lewis has developed a strategy to revitalise the retailer’s UK business.

Tesco signalled this morning it is rationalising its SKUs as it moves to a higher volume, lower unit price model. Management has said it is shifting away from promotional pricing to every day low prices on key lines.

As of today (8 January), Tesco has cut the price of 300 branded SKUs in store, Lewis revealed. These price cuts have to date been funded by Tesco, he added.

“We’ve made the change. We’ll communicate the change. It is in store today. This is a significant move from us in terms of brands’ unit pricing and not promoting.”

The company reported a drop in sales for its third quarter of 3.8% but the market was cheered as Christmas sales trends came in ahead of expectations. “Christmas trade materially improved and beat market expectations with UK LFL sales over the 26 week period down 0.3%,” Shore Capital analysts noted.

Tesco, which has seen around half the value of its share price erode since the accounting scandal broke, had seen its shares jump 14.97% by 16:45 today.