A BBC TV Newsnight investigation alleged suppliers were intimidated by the food manufacturer’s demands they invest large sums in the business or face de-listing. One supplier likened the practice – known as ‘Pay and stay’ – to “blackmail”.
Another supplier told the programme: “It's like a gun held to your head.”
But Premier Foods today (December 5) insisted it had done nothing wrong. A spokeswoman told FoodManufacture.co.uk: “There has been no malpractice – alleged or otherwise.”
The spokeswoman said the firm launched its ‘Invest for growth’ programme in July last year as part of a wider plan to reduce complexity and help turn around the business.
'Requires our suppliers to make an annual investment'
“This included a commitment to halve the number of our suppliers and develop more strategic partnerships focused on mutual growth,” she said. “The programme requires our suppliers to make an annual investment to help fund our growth plans. In return, our suppliers benefit from opportunities to secure a larger slice of our current business.
“They also stand to gain as our business grows in the future. In the current challenging environment, the support of all of our suppliers is crucial and we have had a positive response from many who are actively engaging in building a new partnership with us, including many small companies.”
Premier Foods boss Gavin Darby was said to have written to suppliers on November 18, requiring them to invest in the business. According to Newsnight, Darby advised suppliers: “We are aiming to work with a smaller number of strategic suppliers in the future that can better support and invest in our growth ideas.”
The letter continued: “We now require you to make an investment payment to support our growth. I understand this approach may lead to some questions. However it is important that we take the right steps now to support our future growth.”
Coverage of the row unleashed a storm of protest on the social networking site Twitter. Labour MP for Huddersfield Barry Sheerman accused the firm of acting like “a food mafia”.
Retail consultancy Begbies Traynor said while Premier Foods was not breaking any competition laws by demanding an ‘investment payment’ from suppliers, its actions had raised questions about business ethics.
‘Operate under microscopic margins’
“Smaller suppliers to the food manufacturing industry typically operate under microscopic margins, meaning that they are extremely dependent on high volume contracts with the likes of Premier Foods, to stay afloat,” said Begbies Traynorpartner and retail expert Julie Palmer.
“Clearly, Premier Foods has been struggling itself, announcing a profits warning in October, however this practice of bringing in millions of pounds of new ‘investment’ from suppliers to mask shortfalls in their own operations will sit uneasy with many,” she said.
“With suppliers under constant pressure to slash prices further while accepting unreasonably elongated payment terms, the UK’s largest food manufacturers and retailers need to find a better way of balancing prices with profits, without pushing their suppliers off a cliff.”
Meanwhile, Premier Foods boss Gavin Darby said the business had too many suppliers in April 2013. Commenting on a conference call with the ceo last year, Shore Capital analysts Clive Black and Darren Shirley said: “Gavin Darby outlined that he felt that there remained too many SKUs [stock keeping units], too many flavours, too differentiated packaging and too many suppliers.” they said.
Read Twitter comments on the Premier Foods row – including suggestions that “Mr Kipling takes exceedingly large bribes” – here.
If you have view on Premier Foods’s treatment of suppliers, please email, in confidence, Michael.stones@wrbm.com.