Shares in Premier Foods plunged 7 per cent yesterday amid a severe backlash against its demands to force suppliers to pay it if they want to continue doing business with Britain’s biggest food company.
The Institute of Directors (IoD), the Federation of Small Businesses (FSB) and the Labour shadow Business Minister lined up to condemn the Mr Kipling and Hovis giant.
Labour’s Toby Perkins wrote to the Department for Business to renew his calls for such demands to be outlawed under the Small Business Bill.
Simon Walker, director general of the IoD, said: “The news that Premier Foods could be forcing its suppliers into controversial ‘pay to stay’ arrangements is deeply disturbing. Holding small businesses and suppliers at gunpoint is a sure way to catch the attention of policymakers and regulators. Premier need to consider their arrangements closely. We encourage them to think of the long-term damage they could be doing to their suppliers, their brands, and business in general.”
Premier, which is already described as “troubled” in the City, had to launch a rights issue to raise new money earlier this year and warned on profits in October. Last night its shares closed down 2.5p at 33.5p.
The company defended the payments, arguing that its “invest for growth” strategy includes asking suppliers to make an “annual voluntary investment to help fund our growth plans”. It said it had received many “positive” responses and that “many of our suppliers have seen their business grow as a result”.
The news follows The Independent’s recent revelation that Morrisons asked its small suppliers to extend their payment terms to 60 or 90 days from an average of 30 days, and other seemingly aggressive practices by Tesco. It was the way in which Tesco accounted for its payments and rebates from suppliers that is thought to be behind the £263m hole in its profits.
The BBC said Premier has received millions of pounds under the plan and the FSB said that “demanding a cash gift under the threat of delisting is downright unfair”. It gave one example of a small business in the South-west that was asked to hand over £1,700.
Julie Palmer, partner and retail expert at the consultancy 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 that 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.”
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