Not so sweet: Premier Foods faces backlash over payment practices

The company has defended charging suppliers for cash- for it to stay on the books

(PA)

Premier Foods, the struggling maker of Mr Kipling cakes and Hovis bread, has come under intense scrutiny over its strategy to demand cash from its suppliers for them to remain on its books.

Premier Foods’ payment practices have been condemned by the Federation of Small Businesses, who said the food group should be “ashamed”.

Shares slipped almost 3 per cent to 35p on the news.

Premier, which tapped shareholders for cash earlier this year and issued a profit warning in October, defended the payments. It argued its “invest for growth” strategy has received many “positive” responses in asking suppliers to make an “annual voluntary investment to help fund our growth plans”.

It added: “many of our suppliers have seen their business grow as a result”.

BBC’s Newsnight claimed that Premier has received millions of pounds under the plan and the FSB said “demanding a cash gift under the threat of de-listing is downright unfair” and argued that, for smaller retailers, the practice is disastrous.

It gave one example of a small business in the South-west that was asked to hand over £1700.

Julie Palmer, partner and retail expert at Begbies Traynor, said: “While Premier Foods is not breaking any competition laws, this is more a question of business ethics. Smaller suppliers to the food manufacturing industry typically operate under microscopic margins, meaning they are extremely dependent on high-volume contracts with the likes of Premier Foods to stay afloat.

“The practice of bringing in millions of pounds of new ‘investment’ from suppliers to mask shortfalls in their own operations will sit uneasy with many.”

Premier’s demand comes in the wake of Tesco’s £263 million profit black hole after mis-accounting payments from its own suppliers. In other sectors, outsourcer Serco was forced to scrap its plan to get its suppliers to pay for government cuts four years ago while rival Mitie was revealed to have demanded one-off payments of £10,000 to become a preferred supplier.

It refunded the money when the scandal was revealed.