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Friday, December 05, 2014

Premier Foods' Nice Little Earner

In a sure sign that it is in financial difficulties, Premier Foods (owner of brands that include Mr Kipling, Ambrosia, Bisto and Oxo) has been asking its suppliers for payments to continue doing business with the firm. 

The official term for this practice is "pay and stay". However, one supplier quoted by the BBC referred to it as "blackmail".

Premier Foods is of the view that the scheme did not break any rules under competition law. However, the government said it was "concerned by recent reports".

Newsnight has seen a letter sent by chief executive Gavin Darby, dated 18 November.
"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.

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."
All very well and seemingly "polite". However, the reality is that if a supplier doesn't cough up, they are "de-listed". As per the BBC, when a supplier raised questions in an email about the annual payments, a member of Premier's staff replied:
"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."
As to whether Premier can legally get away with this, is a question for legal experts.

However, what its suppliers needs to ask Premier is given Premier's financial problems, what happens to the "pay and stay investments" already handed over by suppliers if Premier goes bust?

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