UK grocery watchdog says Tesco "seriously breached" industry code

LONDON, Jan 26 (Reuters) - Tesco (Xetra: 852647 - news) , Britain's biggest supermarket, "seriously breached" the industry's legally-binding code to protect suppliers by prioritising its own finances over treating them fairly, the country's grocery watchdog ruled on Tuesday.

The Groceries Code Adjudicator (GCA), Christine Tacon, launched an investigation into Tesco last February in the wake of the firm's 263 million pounds profit overstatement, revealed in September 2014. A separate Serious Fraud Office probe is ongoing.

The accounting scandal led to the departure of several senior Tesco executives and plunged the firm into a crisis it is still to fully recover from.

Tacon found Tesco acted unreasonably when delaying payments to suppliers, often for lengthy periods of time.

"The length of the delays, their widespread nature and the range of Tesco's unreasonable practices and behaviours towards suppliers concerned me," she said.

"I was also troubled to see Tesco at times prioritising its own finances over treating suppliers fairly."

She (Munich: SOQ.MU - news) has told Tesco to introduce significant changes to practices and systems in relation to suppliers.

Tacon expressed concern about three key issues: Tesco making unilateral deductions from suppliers, the length of time taken to pay money due to suppliers and in some cases an intentional delay in paying suppliers.

She said Tesco's breach of the Code was serious because of the varying and widespread nature of the delays in payment.

The GCA has been given powers to fine supermarkets but they came too late for the Tesco case.

Tacon's recommendations include stopping Tesco from making unilateral deductions from money owed for goods supplied and giving suppliers 30 days to challenge any reduction. If challenged Tesco will not be entitled to make the deduction.

Tesco has been given four weeks to say how it plans to implement the recommendations.

Dave Lewis, who became Tesco chief executive shortly after the profit overstatement was discovered has already acted to strengthen compliance and change the way the firm works with suppliers.

Earlier, this month the firm reported better-than-expected Christmas trading, indicating it may finally be on the mend.

(Reporting by James Davey, editing by Paul Sandle)