Tesco’s brand health plummets following supplier scandal

Tesco’s brand has taken a hit as consumer perception plummeted after the retailer was found guilty of short-changing suppliers in a probe by the government’s Groceries Code Adjudicator (GCA).

Tacon began the investigation into Tesco’s relations with its suppliers last February after the supermarket admitted in 2014 to overstating its profits by £263m.

Tesco’s CEO David Lewis quickly apologised following the report’s publication and said the retailer had “fundamentally changed” its ways. Tesco now has four weeks to make clear how it plans to implement the GCA’s recommendations.

Worryingly for Lewis, the supplier scandal appears to have also had a negative impact on consumer perception of Tesco, according to YouGov BrandIndex ratings.

Over the last week, Tesco’s index score – which is a combination of consumer perception within areas such as quality, value and reputation – has fallen by 12.2 points; a drop deemed statistically significant.

Its buzz score, which is a balance of positive and negative consumer sentiment towards a brand, fell 16.3 points leaving it comfortably bottom of the UK’s 26 biggest food retailers.

Perhaps most significantly, Tesco’s purchase intent among current customers has also fallen by 4.4 points; the steepest fall among any UK supermarkets over the last seven days.

Changing its ways

Since joining Tesco as CEO in July 2014, Lewis has made an effort to simplify Tesco’s relationship with its suppliers. Speaking at an IGD Conference last October, Lewis announced plans to speed up payments so its smallest suppliers, who deliver up to £100,000 worth of products a year, are paid within 14 days – on average 34 faster than before.

Tesco is still awaiting a probe by Britain’s Serious Fraud Office (SFO) into its supplier relations, which Cantor Fitzgerald analyst Mike Dennis believes could result in a fine of up to £500m for Tesco.

Neil Saunders, managing director of Conlumino, says the supplier scandal will have damaged shopper perceptions of the Tesco brand. He said: “I certainly think it will have a negative impact on the way shoppers perceive Tesco and what they think of it as a business. As such, its brand image will be somewhat tarnished.”

However, he believes the impact the supplier scandal will have on shopping habits is manageable.

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YouGov BrandIndex suggests Tesco is losing sales as a result of the supplier scandal

He added: “it is important to make the distinction between how consumers perceive a brand in a corporate sense and how they perceive it in terms of its retail operations. In this case the damage is corporate and, as such, it is far more manageable.

“As much as customers may genuinely believe that Tesco has acted badly, the blunt truth is that most do not care enough to change their shopping habits. That said, Tesco making some clear statements in its future CSR reports or as part of a general brand position would be helpful.”

Tesco saw its UK sales increase by 1.3% on a like-for-like basis in the six weeks ending 9 January. The festive performance was way ahead of analysts’ expectations, with the City predicting a sales fall of up to 3%.

And Shore Capital’s Clive Black says the supplier scandal “will not derail the Tesco recovery programme” and says Lewis would have been prepared ever since taking the top job at Tesco.

He concludes: “These developments involving Tesco over the last week are clearly unhelpful. However, the company is correctly pointing out that this relates to times gone by, by different people in charge and that things have changed.”

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  • Timm 2 Feb 2016 at 11:17 am

    Tesco has been treating its suppliers badly for years. I’m surprised the news has taken this long to become common knowledge.

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