Tesco systematically and deliberately withheld money owed to suppliers without warning to boost its sales performance ahead of revealing its results to the stock market, the supermarket watchdog has found.
The Groceries Code Adjudicator also said that the supermarket would encourage suppliers to give it extra cash in return for more control over where products appeared on shelves or to avoid losing out to rivals.
Christine Tacon, the GCA head, demanded Tesco improve relations with suppliers, stop taking money from them without permission and speed up correcting the numerous errors that would occur on its payment systems.
She also said all finance and buying teams must be trained in the findings of the investigation.
The report is the first major publication into Tesco's internal workings since the company admitted it had overstated profits under the leadership of Phil Clarke.
It paints a picture of a culture where staff were encouraged to boost margins at any cost and ignore pleas for payment.
In one case Tacon found that Tesco had withheld a multi-million pound payment from one supplier for over two years. Several suppliers also made margin payments of £1 million to Tesco, regardless of whether more of their products had been sold.
The report will now be passed onto the Serious Fraud Office who are conducting a criminal investigation into Tesco, which will look at whether the company lied to the stock market or any directors broke the law.
The findings are expected to also be used by investors who may want to sue Tesco for the collapse in share price since the revelations in September 2014.
Tacon revealed: “A Tesco list of methods for meeting the half-year target included 'Not paying back money owed'.
”The evidence I received revealed a number of examples of Tesco deliberately deferring payment of money in order to maintain its margin at key financial reporting periods.
“I find that Tesco knowingly delayed paying money to suppliers in order to improve its own financial position.
She added: ”In particular, requests for payments to meet margin targets appeared to be more prevalent at the end of trading periods. Some suppliers reported that what set Tesco apart from other retailers was the pressure it put on suppliers at the end of a financial quarter, half-year or full-year.“
The supermarket also avoided dealing with suppliers it was in dispute with, and Tacon pointed out ”one of the key cultural factors“ which caused the delays was an apparent ”reluctance of some Tesco buyers to pro-actively engage in the resolution of payment disputes. There were times when Tesco did not appear to even attempt to resolve supplier concerns before unilaterally deducting money from suppliers.“
Bosses were in breach of the code on payment delays, but not on charging suppliers directly for prominent positioning on shelves However, she found that there were examples of indirect charging, which may require the code to be modified.
The GCA only recently were granted the power to fine supermarkets, but not retrospectively, meaning Tesco avoided a fine.
The report did find, however, that Tesco has subsequently improved its relations with suppliers, after chief executive Dave Lewis simplified the supply chain.
