Premier Foods Demands Cash from Suppliers – Is It Blackmail?

The BBC website this morning was leading with a procurement story, which they ran on their news programme Newsnight last night. The CEO of Premier Foods, Gavin Darby, wrote to suppliers on November 18th demanding payments.

Premier Foods, one of the UK's biggest manufacturers, has been asking its suppliers for payments to continue doing business with the firm. One supplier said the practice - known as pay and stay - was like "blackmail".

Newsnight understands the struggling company has received millions of pounds from its suppliers in this way.

One supplier was asked for £70,000 - apparently without any guarantee of business. Newsnight also suggested the payments would be annual rather than one-off.

"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".

It could be unlawful, according to a legal expert Newsnight talked to. That depends on how dominant a position the firm has in certain markets. But while that may be debatable,  it certainly is some combination of desperate and / or truly, deeply stupid. It is also not a new story - we ran this a year ago, so this isn't the first time Premier has done this.

We'll come back at more length on Monday and analyse this, but in the meantime, how does CIPS feel about its winner of the "Best Cross Functional Teamwork" award at this year's SM Awards event behaving in this way?  Is this ethical behaviour?   (Ironically, the firm won the CIPS Best Supplier Relationship Management award in 2010!)

Of course, what would scupper this scheme is if ALL suppliers simply tell Premier exactly where they can shove their Hovis wholewheat loaves. If they all do this, there's not much the firm can do.  And all I can say is I'm glad I don't own shares in the firm. I know what the action suggests to me.


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Voices (3)

  1. Chris C:

    If I was a supplier I would consider putting them on very short credit terms… This might be proof again that food brands are a dying breed, as the discount supermarkets are demonstrating.

    1. bitter and twisted:

      Is there any legal barrier to stop a supplier shorting a customers’ stock.

  2. David Atkinson:

    Desperate and pathetic.

    It might have been different if Premier had genuinely offered suppliers tangible incentives to be part of a partnering programme (long term agreement, co-branding/marketing opportunities, benefits sharing on improvement initiatives, etc) rather than seemingly position the ‘deal’ as an entry ticket.

    It’s about time CIPS said something loud and clear about this type of poor procurement practice. It’s not as it the retail sector is full to the brim with CIPS members, is it?

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