Tuesday 26 January 2016

GCA-Tesco Investigation, What Now?

The GCA Investigation report establishes a basis for suppliers wishing to bench-mark and re-set their relationships with Tesco and other retailers.

Nothing beats a detailed reading of the report in order to identify key aspects to a supplier’s actual trading relationship with Tesco, but application has to be top-of-mind….

In practice, suppliers need to revisit all aspects of their trading relationship and establish working limits, i.e. walkaway points, in each case.

Essentially, the report provide two key areas for immediate application, Credit periods and Deductions.

Credit Periods
Tesco currently pays suppliers in 44 days on average, and the GCA report (7.3) refers to a Competition Commission Report published in 2000 that noted ....retailers delaying payments to suppliers beyond contractual payment periods or by more than 30 days from the date of invoices may adversely affect the competitiveness of some suppliers. 

In practice, for daily delivered SKUs, it could be said that seven days is even more appropriate, but every little helps…

However, strictly speaking, GSCOP specifies that breaches occur when a retailer deviates from a negotiated agreement on terms i.e. the onus is on suppliers to reach agreement on a 30-day credit period if they wish reduce their exposure and operate on that basis.

The report also focuses on unilateral deductions and gives sufficient examples for suppliers to use as a basis for internal adjustment of their systems. Essentially, this means assessing their supplier-retailer relationships re
- Unilateral deductions made in relation to historic claims (Post-audit recovery)
- Unilateral deductions for short deliveries and service level charges
- Unilateral deductions made for other items or unknown items

Given that it can be easier to document each aspect of the trading relationship in advance of execution, if only to avoid having to recover two year old documents under the pressure of a two week buyer deadline, suppliers need to establish ways of minimising post-audit claims, agree and document delivery and service level conditions and anticipate possible deductions for any other breaches.

The pending SFO report - due this week - will add numbers to the above, as well as fleshing out Trade investment definitions and measures.

On balance, the GCA and SFO reports can provide a basis for suppliers to revert to basics with Tesco, treating the company as a new major customer. This means re-assessing Tesco’s relative competitive appeal vs other customers from a consumer-shopper point of view (think media fall-out from both reports), the retailer’s development life-cycle in a radically changed market, and the characteristics that qualify them as an Invest, Maintain or Divest customer, all tailored to your brand consumer...

Finally, for your category, an objective re-assessment of your relative competitive appeal vs Tesco’s new appetites arising from both GCA and SFO investigations will help you determine the strength of your negotiation position in re-setting and optimising the opportunity window partially opened this morning by the GCA Report... 

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