Premier Foods reviews ‘pay and stay’ practice after outcry

The UK company Premier Foods, producer of the popular brands Mr Kipling, Oxo and Bisto, has been accused of operating a policy to ditch suppliers that refuse its request for investment.

The request follows similar requests in the past two years from the UK chains Halfords, Debenhams, Argos and John Lewis.

Vince Cable, the business secretary, has now asked the watchdog Competition and Markets Authority to examine pay-to-stay clauses in suppliers’ contracts and consider action against Premier.

He said: “I am very concerned that this practice is becoming commonplace and is placing considerable strain on already hard-pressed small businesses.”

Cable’s ministry is meanwhile gathering views on the “preferred supplier” approach, “which can cause difficulties for smaller businesses”.

The Institute of Directors finds the practice “deeply disturbing”. Director-general Simon Walker said: “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.

“Those of us who believe in the benefits of market forces and minimal state interference should be equally furious that a few bad apples risk spoiling the whole barrel.”

The opposition Labour Party goes one step further by demanding that the practice is outlawed. However, Labour MPs have failed in their attempt to build a ban into business and employment legislation now proceeding through parliament.
Toby Perkins, the shadow business minister, said: “Building a stronger economy relies on free and fair markets, but where unfair practices emerge, government should be willing to take action.”

Premier Foods maintains that failing to invest does not exclude a supplier, and that price, quality, reliability and service are similarly important.

The company states: “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.”

Suppliers’ responses had been “positive”. Premier said: “We launched our invest-for-growth programme in July 2013 as part of a broader initiative to reduce complexity in support of plans to turn around the business.

“This included a commitment to halve the number of our suppliers and develop more strategic partnerships focused on mutual growth.

“Many of our suppliers have seen their business grow as a result.”

Colin Maher, general manager of Sartorius Intec, which provides laboratory and technological goods, said that since his company invested, its annual business with Premier had grown from less than £20,000 to about £500,000 ($31,000-$783,000, €25,000-€632,000).

Immediately after the pay-to-stay revelation Premier’s share value fell 5%.