Premier Foods, beating up suppliers and the true meaning of austerity

EDITOR'S BLOG: When things are tough down at the grocers, balls get squeezed ever harder. It's an unedifying sight, says Matthew Gwyther.

by Matthew Gwyther
Last Updated: 23 Jan 2015

It’s a mark of the current antipathy felt towards big business that the BBC’s ‘scoop’ about Premier Foods ‘pay and stay’ bullying of suppliers led both Newsnight last night and tops its website at the moment.

The Beeb managed to find a rare thing - a supplier in the food chain willing to squeal who seems unconcerned that he will be cut off at the knees. Bob Horsley - a classic Bob Cratchett for the festive season - is a maintenance supplier to the Ambrosia factory in Devon. He was filmed doing a bit of honest welding on a custard pipe in his Devon workshop. Bob hasn’t been amused to receive the follow classic weasel-worded letter from Premier CEO Gavin Darby, aka Lord Scrooge von Voldermort.

Darby wrote, ‘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.’

Apparently when a supplier cried foul in an email about the annual payments, another 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.’ (I make investment payments in the great British state - it’s called vast amounts of PAYE and VAT.)

Anyway in classic, wide-eyed BBC fashion there was a marked lack of dot-joining. What’s the bigger picture? Why does Premier behave like this and where did it learn this sort of knuckle-duster modus operandi? Who invented that delicious euphemism ‘to de-list’?

The answer is, on both counts, from the supermarkets. Putting the muscle on suppliers by supermarkets - something that appears to have been taken to such lengths at Tesco that even the Serious Fraud Office got interested - has become a learned universal behaviour. Read this little gem about how they do it in the meat department at Tesco.

Supermarket supply chains are like a kid’s playground in a miserable Siberian suburb. Here  the school bully goes and thumps the next largest urchin down who, downcast in a search of a means of recovering his self-esteem, promptly and goes and thumps the smallest kid who cannot wallop back. At the bottom of this spiral of bullying comes SME-Kid who cannot whack anyone. The whole thing is abusive in the same way as rigging the market by forex traders is. But that’s the way this dysfunctional and distressed market works at the moment.  

Ever keen to be a friend to the consumer - and with its eye on the election - the government has said it is going to look at this. A pretty pathetic statement was made by the toothless BIS, a spokesperson for which said it was a ‘hugely important issue’ that ministers were taking 'very seriously'. That will have everyone quaking in their boots.

This is nonsense. BIS can, of course,  do nothing. If it outlaws the practice of a single payment or ‘bribe,’ Premier just says to the farmers who provide the milk for its delicious Ambrosia custard that it is going to knock x pence per litre off the price. Either way the supplier will have to accept a reduced margin or sling his hook.

Nobody should underestimate the seriousness of the trouble in which the supermarkets find themselves at the moment. The first food price deflation since the British Retail Consortium started compiling records in 2006 may well  be greeted with enthusiasm by shoppers in the runup to Christmas. But it puts still further pressure on retailers’ margins after nearly two years of overall annual price falls for food and other goods taken together.

For its part Premier is struggling and has done for years. There was yet another profits warning in October. It off-loaded many brands including Branston Pickle to the Japanese. A period in the cold grasp of private equity didn’t help much either. In a world of five grain porridge, the long term prospects of legacy products such as Angel Delight, Mr Kipling and Bisto don’t look too bright. In the old days you’d have booked a 30 second spot in the Coronation Street ad break to rectify this. But that doesn’t work any more. Now Ambrosia has a rather sad 160 likes on its Facebook page.

Since 2008 we’ve all had to learn the meaning of austerity. Not living beyond our means, and wearing the hairshirt after too much irrational exuberance. For most of us this means no wage rise for 2-3 years, the loss of child benefit and ever increasing rail fares.

As a result of austerity, public spending is now heading towards an 80 year low - at least if George Osborne gets his way. For business, in a world like grocery where consumer demand is sluggish and stuttering, austerity means getting your costs down and squeezing the balls of those who supply you. It’s just about the only room you have for manoeuvre. All in the interest of ‘investment for the future’ of course.

And even when the supplier gets the gig, he/she waits months to get paid. When was the last time any of you didn't have to chase an invoice to get it paid?

Meanwhile it’s Small Business Saturday tomorrow. So go out and support the little guys because there’s no end to the ruthless ball-squeezing that the Cratchetts  are on the wrong end of these days. And they cannot squeeze down.

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