Premier Foods has insisted that its controversial policy to ask suppliers for “investment payments” is voluntary and non-payment will not result in de-listing.
Premier’s demands for these payments from suppliers were revealed by The Grocer in July 2013 when the firm first announced its intention to axe half of its then 3,000-strong supplier base.
It was understood then that Premier based its cash demands on a percentage of annual billings - thought at the time to be about 5%.
The maker of Oxo, Sharwood’s and Mr Kipling has written again to suppliers in recent weeks asking again for payments as part of its ongoing drive to consolidate the number of companies it sources ingredients and materials from.
BBC’s Newsnight programme has bought the controversial payments back into the spotlight, suggesting last night that Premier has received “millions” of pounds from suppliers under the scheme. The programme said that a member of Premier staff had told a supplier that those companies who do not provide these investment payments will be nominated to be de-listed.
However, a Premier Foods spokesman told the Grocer the payments were voluntary.
”Not paying does not automatically mean PF will stop using a supplier. Price, quality, reliability and service are also all important criteria,” the spokesman said. ”Participation in the invest for growth programme is one factor that Premier Foods take into account in supplier selection but the other criteria are also important.”
Premier Foods told Newsnight: “We launched our ‘invest for growth’ programme in July last year as part of a broader initiative to reduce complexity in support of plans to help turnaround the business. This included a commitment to halve the number of our suppliers and develop more strategic partnerships focused on mutual growth.
“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.”
A number of suppliers were fiercely critical of the payments last year and again today accused Premier of unethical practices.
The Federation of Small Businesses said Premier “should be ashamed of themselves”, with national chairman John Allan adding: “Driving a hard bargain with your suppliers is one thing, but demanding a cash gift under the threat of de-listing is downright unfair.”
Julie Palmer, partner and retail expert at Begbies Traynor, said: “While Premier Foods is not breaking any competition laws by demanding an ‘investment payment’ from suppliers wishing to remain on their books, this is more a question of business ethics.
“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.”
Premier Foods has experienced financial stress of its own in recent times. The company completed a £1.1bn refinancing and pensions deal in March 2014 to slash debt at return it to a stable financial footing.
However, Premier’s share price has fallen dramatically this year – crashing by 72% so far in 2014 as pressure has ratcheted up on the business from the dramatic changes in the food retail sector. Premier has struggled to turn around falling sales – announcing in October a 4.1% fall in third quarter branded sales and a 5.1% sales drop for its key ‘power brands’.
In September Premier Foods has announced a major restructure that will see the company split into three distinct business – Grocery, Sweet Treats and International – to enable it to “develop more agile ways of working”.