By Daniel Hunter
Premier Foods, one of the UK's biggest food manufacturers, has been accused of 'blackmailing' its suppliers.
According to BBC Newsnight, Premier Foods has received payments of millions of pounds through the practice known as "pay and stay". The suppliers are effectively forced to make payments in order to continue doing business with the company.
One supplier described it as "blackmail".
Newsnight has seen a letter from Premier Foods chief executive Gavin Darby, dated 18 November, to a supplier.
It reads: "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."
He added: "We will now require you to make an investment payment to support our growth.
"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."
When the supplier raised concerns about the investment payment, another member of Premier Foods staff said they would be "nominated for de-list" if the payment was not made.
"We are looking to obtain an investment payment from our entire supply base and unfortunately those who do not participate will be nominated for de-list," the email said.
Bob Horsley, who has had a maintenance contract with Ambrosia, one of the brands owned by Premier Foods, for more than 10 years. He said he was "taken aback" when he saw the letter.
Mr Horsley said: "I think it's like blackmail.
"What they are saying is 'unless you pay this money, you can't do the work'."
He has since decided not to make the payment and risk being 'de-listed'.
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.
"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 in the future."
It added: "In the current challenging environment, the support of all of our suppliers is crucial.
"We have had a positive response from many who are actively engaging in building a new partnership with us, including many small companies."
John Allan, National Chairman of the Federation of Small Businesses, said: “Premier Foods should be ashamed of themselves. Driving a hard bargain with your suppliers is one thing, but demanding a cash gift under the threat of delisting, is downright unfair.
“The deterioration of payment practices is an anchor dragging on the potential of small and medium businesses to grow and take on new staff. Too many firms are waiting months for the money they are owed, and this has knock-on on their own supply chains. If the questionable practice being attempted by the likes of Premier Foods becomes the accepted norm, it may well sink those small firms without the cash reserve to prop up their larger customers.
“The Government has a golden opportunity with the Small Business Bill to take a firmer stance on payment practices. It also needs to do more to toughen up the prompt payment code, making membership more than just inclusion on hollow list of big companies.”
Julie Palmer, Retail expert at Begbies Traynor, said: "With suppliers under constant pressure to slash prices further while accepting unreasonably elongated payment terms, the UK's largest food manufacturers and retailers need to find a better way of balancing prices with profits, without pushing their suppliers off a cliff."
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