Food firm struggles linked to Premier-style investment demands

By Rod Addy contact

- Last updated on GMT

Premier Foods is under pressure to grow sales of its 'power brands'
Premier Foods is under pressure to grow sales of its 'power brands'

Related tags: Mr kipling

Half of food firms’ financial difficulties have been linked to companies demanding one-off payments from their suppliers in a similar way to Premier Foods, according to one industry expert.

Duncan Swift, partner and head of food advisory at chartered accountancy Moore Stephens, said he encountered such practices routinely in a former role as head of Grant Thornton’s food and agribusiness recovery group.

“In the generality of financial distress, this uncertainty as to the cost of dealing with a dominant customer was typically featuring in half of the cases I was dealing with,”​ he told FoodManufacture.co.uk. “That statistic’s been pretty consistent for the last 15 years.”

Coverage of Premier’s demands for cash from suppliers​ on BBC Two’s Newsnight​ last week (December 4) has provoked significant conventional media and social media reaction​.

Swift welcomed the interest in the topic. “At last! The great British public is waking up to what more seasoned observers have seen going on for years and they have just started to realise what it means and that de-listing and the fear culture are a real phenomenon throughout the supply chain.”

‘Ethically wrong’

That Premier’s so-called ‘pay to play’ approach was legal was not the sole issue, said Dan Crossley, executive director of the Food Ethics Council. “I think it’s ethically wrong that companies should be asking their suppliers to invest in this way.”

He called for the Groceries Supply Code of Practice (GSCOP) to be beefed up to cover suppliers as well as the top 10 retailers.

“One of the things we would like to see is a revised GSCOP adjudicator – a Food Power Adjudicator. The GSCOP doesn’t cover foodservice or situations like this.”​ Swift agreed and argued adjudicator Christine Tacon should be upgraded to an ombudsman with more powers.

The final 2008 Competition Commission report ‘The supply of groceries in the UK market’ ​recommended that the government should create an ombudsman with power to regulate and enforce decisions.

Some UK ministers also backed the proposal. However, the government provoked criticism by creating an adjudicator with weaker powers.

Asked if he felt such behaviour by larger suppliers was anti-competitive if all their suppliers got equal treatment, Swift said: “They do tend to make financial demands for supplier contributions proportionate to the level of turnover, as in dealings between the customer and the supplier.

“But the SME ​[small to medium-sized enterprise] sector is not necessarily as financially sophisticated and able to weather those working capital calls.”

Need to grow revenues

The latest revelations about Premier were likely to increase pressure on the company to boost sales of its ‘power brands’ such as Mr Kipling and Ambrosia desserts, said Swift. After the company successfully renegotiated loan terms a year ago, analysts highlighted the need for it to grow revenues to reduce debts and keep shareholders happy.

In terms of wider implications, Julian Wild, partner, corporate finance, for law firm Rollits, doubted that Premier’s negative press coverage would have any long-term effect on business practices in the grocery supply chain.

“This will be a ‘one day wonder’ and then things will carry on, but ‘customers’ may need to revert to more covert and private ways of extracting money from suppliers. Consumers aren’t really bothered so long as they can get their food even more cheaply.”

In a statement, Premier said the request for payment from suppliers and service providers, ranging from recruitment firms and equipment firms, was part of its ‘Invest for Growth’ programme in July 2013.

It was part of a broader initiative to reduce complexity supporting plans to help turn around its business, it said.

“As part of the programme, our suppliers are asked to make an annual voluntary 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.

“We are delighted with the positive response from many who are actively engaging in building a new partnership with us, including many small companies. Indeed, many of our suppliers have seen their business grow as a result.”

Related topics: Ambient foods, Bakery

Related news

Show more

Follow us

Featured Events

View more

Products

View more

Webinars