Thailand accuses Tesco of ripping off local suppliers

Tesco became embroiled in a row over ripping off suppliers in Thailand yesterday after the government accused the UK supermarket group and three other retailers of imposing charges on suppliers in return for putting their goods on the shelves.

If prosecuted Tesco could face heavy fines and possible jail terms for its executives.

Thailand's deputy commerce minister, Newin Chidchob, said the government's case against Tesco, Carréfour, Casino and Siam Makro will be reviewed by a second panel before the government takes the case to court.

Thai officials said they are considering requiringretailers to obtain government permission to open new stores and barring them from charging fees to suppliers.

New entrants to Thailand such as Tesco and Carréfour have built up large market shares in Thailand and now account for half the grocery market between them. Small shopkeepers and domestic retail chains say they have been forced to cut prices to compete with the hypermar-ket invasion.

Tesco has 37 hypermarkets in Thailand and in the six months to June recorded sales of £401m there.

Tesco admitted that it levies fees on suppliers for "services rendered". These include suppliers' use of Tesco's central distribution system and inclusion of their products in marketing literature. It denied that it charged fees for access to its supermarket shelves.

A Tesco spokesman said: "It is a partnership between Tesco and the suppliers that is beneficial to both sides."

Tesco said the Thai government was working on a proposed new retail law, but that it was at the very early stages of consultation.

The company said the setback would not affect its expansion plans in Thailand. It is starting to open smaller supermarkets and is planning a value format for the "up country" regions away from Bangkok.

Analysts were unconcerned. David McCarthy, at Salomon Schroder Smith Barney, said: "I don't think it's a big deal."

The companies face fines up to 6 million Thai baht (£88,000), and their directors could face three years in jail.

Tesco has faced other problems. In December a rocket-propelled grenade was fired into a building which included a branch of Tesco. Tesco Lotus stores in Thailand were the target of several small bombs in attacks believed to be linked to a dispute over a contract to provide security for the chain.

Tesco shares were also hit yesterday by Goldman Sachs, which said Asda would use non-food margins to increase price competition in the UK. But, the move would hit J Sainsbury and Safeway hardest.

The company's shares fell 12.25p to 204p.