Question: Study the following news: (1) Tesco demands 50% off from suppliers; (2) Supermarkets repay rates relief after backlash, explain the actions taken by Tesco by the ethical theories you learned in the subject(corporate social responsibility). (25%)

Additional Information:

News (1)

Tesco demands 50% off from suppliers

The Sunday Times, 7 May 2020

By Sam Chambers

Tesco has demanded "offensive" discounts from suppliers in a move expected to spark a price war.

Britain's biggest grocer has given suppliers until Friday to accept discounts of up to 50%, which will be partly funded by scrapping promotions. Tesco has pledged to match Aldi's prices on 500 products after gaining share from the discounter for the first time in a decade during lockdown. Aldi and rival Lidl are likely to cut prices further.

"What we have been asked for is frankly offensive. If Tesco removes promotions they will halve our business [with them]," one supplier said. Tesco, run by Dave Lewis, said it was committed to open and fair relationships with suppliers.

Tesco's tough stance in part reflects an effort to avoid the mistakes of the last recession, when its reluctance to cut prices gave Aldi and Lidl room to thrive. l Ocado's new head of retail, Melanie Smith, has told suppliers she was "shocked" at how low Ocado's profit margins were and would be seeking to renegotiate terms.

News (2)

Supermarkets repay rates relief after backlash

BBC, 4 December 2020 By Dominic O'Connell

Tesco and Morrisons will together hand back more than 850m worth of business rates relief they received as support during the coronavirus crisis.

Tesco said it would repay 585m after it was criticised for paying dividends to shareholders.

Morrisons subsequently announced it had "brought forward" a decision on rates relief and would pay back 274m.

Tesco said the help to retailers had been a "game-changer" and hugely important at the time. But it added that its business had proven "resilient" and it had now decided to return the money in full.

"We will work with the UK government and devolved administrations on the best means of doing that," it said.

In October, Tesco defended paying a 315m dividend to shareholders after reporting a 29% increase in profits for the first half of the year. Finance chief Alan Stewart told reporters it was the right policy.

Meanwhile, Morrisons said it would announce its dividend when it knows how much it has made this year.

Commenting on the decision to pay back the rates relief, Morrisons' chief executive, David Potts, said the supermarket chain had "done its best work" to meet the "enormous challenges" the pandemic had brought.

"We are grateful for the government's swift action at the start of the pandemic which enabled the whole sector to face squarely into the challenges and disruption caused by Covid-19," he said.

Business rates relief was extended to all retailers as part of a package of measures announced in March.

Tesco profits surge as online orders double

In March, Tesco was accused of "whipping up a huge lobbying operation" against a decision not to give its biggest stores in Wales financial help.

The Welsh government changed its mind and decided to grant business rate relief to all retail, hospitality and leisure firms.

Tesco is understood to have asked the Welsh government for an explanation of its thinking rather than a change in policy.

"The decision to repay business rates relief is one for individual companies to consider for themselves," said Tom Ironside, director of business and regulation at the British Retail Consortium.

"Many have used this money to cover increased costs as a result of Covid - hiring extra staff and making significant investment in the safety and protection of their premises. As such, there are many firms who simply cannot afford to repay this government relief."

While most of the public focus has - for obvious reasons - been on the furlough scheme, the business rates holiday for retailers and hospitality companies has been one of the main ways the government has tried to keep alive the companies most affected by pandemic closures. Like all coronavirus schemes, however, the rates relief was a blunt instrument - it went also to retailers who have stayed open throughout.

When those retailers decided to pay dividends to shareholders, there was an understandable outcry. Tesco was the object of most opprobrium; it said it would pay 315m to investors after reporting that pandemic trading had been buoyant.

Directors at the supermarket chain have obviously read the headlines. The company said it would repay the 585m it has had so far this year in business rates relief, while pointing out in passing that it estimated the pandemic had brought it 725m in additional costs.

The question now is whether other essential retailers - especially the big grocery chains such as Sainsbury's and Asda - will follow Tesco's lead. It would be surprising if they did not.

And while the repayments might appear like a public-spirited move, bear in mind the board may have had other motivations: in particular, a desire not to have the public support they have received hanging over them and preventing them from exercising their normal commercial judgement in paying dividends, approving bonuses and making deals.

Tesco said the money meant that it had had the immediate confidence, in the face of significant uncertainty, to invest in colleagues and support its customers and suppliers.

"Every penny of the rates relief we have received has been spent on our response to the pandemic. Our latest estimate at our interim results in October was that Covid would cost Tesco [about] 725m this year - well in excess of the 585m rates relief received.

"Ten months into the pandemic, our business has proven resilient in the most challenging of circumstances. While all businesses have been impacted - many severely so - we have been able to continue trading throughout, serving many millions of customers every day and although uncertainties still exist, some of the potential risks faced earlier in the year are now behind us."

Chief executive Ken Murphy said: "Giving this money back to the public is absolutely the right thing to do by our customers, colleagues and all of our stakeholders."