Who killed Palmer & Harvey? Was it the CMA, whose provisional finding was to wave the Tesco-Booker deal through, after concluding P&H was “well placed” to compete? The CMA certainly doesn’t think so, telling The Grocer this week that “we find no direct link with the announcement”.
Was it Costcutter? As The Grocer can reveal, a week before the wholesaler went into administration, it had verbally served notice on Palmer & Harvey of its intention to switch its £500m contract to the Co-op – a move that reunites Costcutter with Nisa following their ill-fated split.
Was it McColl’s? It too had pulled the plug on its P&H contract in the summer, with plans to migrate supply to Morrisons from next July.
You certainly can’t blame them for abandoning ship. For even though these two customers fired the final devastating torpedoes below the water line, as Tony Reed admitted in an exclusive interview with The Grocer this week, it’s been a constant battle to stay afloat since the start of the year as its ever-worsening cashflow led service levels to dip to unacceptable levels.
You can’t blame the tobacco suppliers for pulling the plug either. Arguably they’ve been too lenient, propping up the business for years as it floundered, with Imperial and JTI now having to write off £160m and £150m respectively.
And I also don’t particularly blame Tony Reed and his loyal team at P&H. Working tirelessly, 24/7, to turn it round, Reed inherited a horrible situation. The end was sudden, and caught a number of retailers and suppliers by surprise. But the seeds of its demise were sown long before his arrival.
In his interview with The Grocer, Reed generously talks about the final MBO in 2008 as “an MBO too far” for the wholesaler, as it took on too much debt. (And the timing, just as Lehman Bros went bust, was unlucky too.)
But it was also badly mismanaged over a number of years. Similar to Entertainment UK, loss-making deals were often secured only to support its asset-based lending model (which encourages volume-based deals rather than profitable ones).
Its buycos, first with Makro, then with Costcutter, were a disaster. It even sold the Mace business.
And as profits fell, and capex dried up, it continued to pay out £8m a year in interest to its preferential shareholders. Over the eight years since the MBO it’s forked out £70m. With the pension deficit soaring from £5.3m to £80m and the Pension Protection Fund likely to step in, questions should surely be asked.
It’s sad to see the end of Palmer & Harvey, the UK’s second biggest grocery wholesaler, with a proud history dating back to 1925. It’s appalling that suppliers, customers and banks have lost money. But the biggest tragedy in this sorry tale is the loss of 4,500 jobs, and a month before Christmas. One enterprising delivered wholesaler has offered to find jobs for P&H staff. And the trade will rally round. Life goes on. It’s the P&H staff, who’ve shown such loyalty and who’ve worked so hard, that I feel sorry for.
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