UK grocery watchdog to probe Tesco's supplier practices

LONDON, United Kingdom - Britain's grocery industry watchdog opened an investigation on Thursday into Tesco's relations with its suppliers, dealing a further blow to the battered reputation of the country's biggest supermarket.

The Groceries Code Adjudicator (GCA) Christine Tacon, set to be given the power to fine retailers up to one percent of their annual UK turnover, said she had formed "a reasonable suspicion" that Tesco had breached the industry's code of practice.

She said there was evidence that breaches "were not isolated incidents, each involving a number of suppliers and significant sums of money".

She will examine the existence and extent of practices which resulted in delayed payments to suppliers. The inquiry will also look into payments made by suppliers to secure more prominent places on shelves for goods.

The investigation comes on top of those by Britain's Serious Fraud Office and the Financial Reporting Council in the wake of Tesco's 263 million pounds profit over-statement. The firm is also facing possible investor lawsuits in the United States.

Dave Lewis, who became Tesco CEO last September, has announced plans to cut costs and sell assets to tackle the crisis he inherited at Britain's biggest retailer. Tesco had UK sales of 48 billion pounds in 2013-14.

Tacon said she took the decision to launch an investigation after considering information submitted to her relating to Tesco's accounting irregularities.

"This is the first investigation I have launched and it is a significant step for the GCA," she said.

Having discussed the practices with Tesco, Tacon now needs more information from suppliers to determine what further action to take. She called for evidence to be submitted by April 3.

"We will continue to cooperate fully with the GCA as she carries out her investigation and welcome the opportunity for our suppliers to provide direct feedback," Tesco said.

Under Lewis, Tesco has acted to strengthen compliance and is changing the way it works with suppliers.

Shares in Tesco, which last year hit a 14-year low after four profit warnings, slipped 0.8 percent to 228 pence by 0915 GMT.

The GCA probe will cover the conduct of Tesco from June 2013, when the watchdog was created, to February 2015, and was expected to take six to nine months.

Last week the government set out plans to give the GCA powers to impose fines before the May 7 general election.

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