Debate Magazine

Supermarkets and Their Suppliers

Posted on the 23 October 2014 by Markwadsworth @Mark_Wadsworth

The Daily Mail has published a supplier's eye view of those Tesco charges.
Too good to cut and paste, scroll down to the blue box headed 'TESCO'S BULLYING TACTICS MEAN YOU HAVE TO PAY THEM!' SUPPLIER TELLS OF HARSH TREATMENT BY BRITAIN'S BIGGEST SUPERMARKET CHAIN.
What the article doesn't explain is the so-called "£263 million black hole". AFAIAA this is no such thing, all quite simple and a question of judgment.
i.e. if Tesco charges a supplier an upfront, non-refundable fee of £1 million to reserve a certain amount of shelf space for the next X months or Y years, should it book that as income on the day it is received or should it time apportion this over X months or Y years?
I'm not sure it matters as it's only a timing issue, so while profits are possibly overstated in the early years, once it's up and running, you end up with a fairly reliable profit figure - because while you are booking all of this year's charges as income, you are not including the corresponding fraction of earlier years' charges either.
(It's the same as fixed asset additions and depreciation. In the early years, it will spend more on fixed assets than it charges in depreciation, but after a few years, the two figures are very similar, i.e. the business is now charging 20% depreciation on the total additions of the last five years.)


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