UK retail giant Tesco has been found to have “seriously breached” a legally-binding code to protect suppliers to the grocery sector in the UK, according to the grocery market watchdog in the UK.

Christine Tacon, the groceries code adjudicator, identified three key issues during her investigation into Tesco that arose after the retailer admitted to overstating profits in 2014.

Tacon had serious concerns around unilateral deductions that Tesco had made against suppliers to maintain margins, the length of time the retailer had taken to pay some suppliers and in some cases, an intentional delay in paying suppliers in order to support profits.

Deliberate

The findings paint a bad picture of the retailer as it deliberately held off paying some suppliers in order to inflate margins and boost profits. According to Ms Tacon, the sums being withheld from suppliers were often significant.

“For example, one supplier was owed a multi-million pound sum as a result of price changes being incorrectly applied to Tesco systems over a long period. This was eventually paid back by Tesco more than two years after the incorrect charging had begun,” said Tacon.

The report produced by the groceries code adjudicator also makes reference to Tesco requiring payments or hello money from suppliers in order to secure better positioning or increased space on shelves.

While Ms Tacon said she found no evidence of this practice from Tesco, she did have concerns about other practices that could amount to indirect requirement for better shelf positioning.

These other practices included large suppliers negotiating better positioning and increased shelf space from Tesco in response to requests for investment from the retailer. Some suppliers were also found to be paying for category captaincy and to participate in Tesco range reviews.

Detriment

In Ms Tacon’s view, payments such as these were to the detriment of smaller suppliers, which could not hope to compete with larger competitors in making such payments.

In a press statement released on Tuesday, Tesco chief executive Dave Lewis apologised on behalf of the company, admitting it had undertaken practices that were “unsustainable and harmful” to suppliers.

The accounting scandal, which initiated this investigation by the UK’s retail watchdog, is also being investigated separately by the Serious Fraud Office in the UK. While Ms Tacon can take no action against the retailer for breaching the grocery code, the Serious Fraud Office has significant powers to penalise Tesco.

There have been some suggestions already that Tesco is facing a fine as much as £500m (€660m) as a result of the accounting practices.