Tesco chief executive Dave Lewis has apologised to the grocery industry for the company’s previous pursuit of unsustainable profit targets, which resulted in the company getting “bent out of shape”.
Speaking at the IGD Big Debate convention in London yesterday, Lewis admitted: “With hindsight, we did not make the right choices. We were chasing a margin target that put pressure on the model, leaving us with congested ranges and poor availability for the products that our customers wanted to buy. By making profit margin the key KPI for our business our customers suffered, our suppliers suffered and our staff colleagues suffered.”
Lewis revealed that an internal investigation in the wake of last year’s accounting scandal identified 69 occasions where Tesco potentially breached the GSCOP code of conduct, which governs the relationship between large retailers and their suppliers.
“These 69 instances are the unintended consequences of us chasing the wrong metric,” said Lewis. “It’s been painful. Our customers have felt it. All we can say is sorry.”
At the event, Lewis announced a new set of trading terms for Tesco’s suppliers, including a commitment to reduce complexity and to pay small producers more quickly. Instead of collecting 25 different forms of commercial income, Tesco will reduce this to five and eventually to three, while the company’s 96 variations in trading terms will be cut to five. Small producers of fresh produce will be paid within 14 days, with medium-sized ones paid within 23.
“We have to get past the things we were negotiating on and get back to focusing on the customer,” Lewis told suppliers. “We will move towards more open, transparent and strategic relationships,” he added. “We want to talk about us and our suppliers as being one business.”
Underlying profits for the first half of its financial year were £354m, down 55% on the same period last year. Like for like sales, while still down, are improving – down 1.3% compared with 4.3% this time last year.