Is Premier Foods Blackmailing Suppliers with its Pay and Stay Scheme?

- Leadership - Dec 05, 2014

Ingredients producers and other key suppliers are being forced to pay Premier Foods in order to maintain their contracts as part of a scheme which the company says will help boost growth and benefit all parties long term. 

Some commentators believe the move could be flirting with the law, while others have slammed the ethics behind the decision - is this a case of business blackmail?

Premier Foods is one of the UK’s largest manufacturers and home to household brands such as Oxo, Bisto, and Mr Kipling, with a supplier base of more than 1,000 companies providing the ingredients and materials for its products.

The firm has been the cause of much controversy as it came to light that it is now asking its supplier network to pay in order to continue doing business with the company – a pay and stay scheme.

While Premier Foods believes it is acting within its legal rights, the UK Government has expressed deep concern and will be looking into the matter, which has been roundly criticised as exploitative, greedy and even blackmail.

According to the BBC, in a letter sent by boss Gavin Darby on November 18, the company said: "We are aiming to work with a smaller number of strategic suppliers in the future that can better support and invest in our growth ideas."

"I understand that this approach may lead to some questions. However, it is important that we take the right steps now to support our future growth."

Those not paying the requested fee will be nominated for de-list.

On Newsnight the company said that "we have had a positive response from many who are actively engaging in building a new partnership with us, including many small companies".

But many other small companies may not be able to afford to inject cash into Premier Foods, which in turn could be the primary customer for some businesses which can ill-afford to lose its contract.

Simon Walker, Director General of the Institute of Directors, said: “The news that Premier Foods could be forcing its suppliers into controversial ‘pay-to-stay’ arrangements is deeply disturbing. At a time when public faith in business is painfully low, such unacceptable behaviour puts a bullet in the chamber for those who think the heavy-hand of regulation is the only way to change the culture of corporate Britain.

“If companies continue to give politicians good cause to intervene, they cannot be surprised when regulations begin to rain down. Holding small businesses and suppliers at gun-point 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.”

While Premier Foods justifies this decision on the basis that it is targeting fewer suppliers and allowing them to gain a greater slice of a growing company (fuelled by added funds), it will be with interest to see if the supply chain complies or stands against what understandably is seen as an act of low ethical standing.

After all, it may even be against the law. 

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