Tesco suppliers feel the chill as Sir Terry bans price rises

Tesco buyers have been instructed to reject price increases from suppliers until after the end of its financial year, in a bid to keep retail prices down.

Delegates attending a Food Manufacture​ business leaders round table claimed suppliers had been told that price increases at Tesco were completely off the agenda until "at least" the end of its financial year (February 25).

The strategy was part of an initiative driven by chief executive Sir Terry Leahy and dubbed 'project iceberg', they claimed.

If negotiations only recommenced in the spring, it could well be several months before they came to anything, said one manufacturer.

Coming at a time when commodity prices were rising sharply, the move was particularly challenging, he said. "And, of course, if Tesco is doing this, everyone else will as well."

One commercial director at a leading ambient food supplier said: "I haven't witnessed anything like this in 10 years. We've been told it's coming from the board. Basically, they won't give us anything until after the year end, and after that we don't know what the line will be. It's impossible to get price increases. It's an unsquarable circle with raw material price inflation so pronounced."

Another source said: "Buyers have been given guidance to defer price increases and it's coming right from the top. The line is that it's all about giving consumers good value. Asda is more or less singing from the same hymn sheet. They are trying to insulate consumers from the effects of rising commodity prices."

Tesco insisted it had "never heard of project iceberg", but did confirm "individual buyers may well have acted [unilaterally] along these lines in order to keep prices competitive for our customers"

A spokesman said: "There is no formal policy and no 'project iceberg', as has been claimed. That's nonsense. If certain suppliers have not been able to push through price increases and feel aggrieved enough to contact the press, however, we can't do anything about that."

The pressure was also on Marks & Spencer suppliers as the retailer struggled to maintain momentum after a strong resurgence in 2006/7, said delegates at the round table debate.

One round table delegate said: "M&S has introduced a supplier rationalisation programme called project Ulysses; it is going through its supplier base category by category to see where it can slim down. Not surprisingly, suppliers are pretty anxious."

However, M&S rejected suggestions that a significant rationalisation was on the cards. "Like all retailers, we review our supplier base from time to time and, as such, it is constantly evolving," said a spokeswoman.