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Premier Foods in mafia-style extortion shakedown?

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After being caught allegedly shaking down its suppliers for investment money, otherwise they would be ‘de-listed’, Premier Foods plc, the maker of Ambrosia, Mr Kipling Cakes, Loyd Grossman, Sharwood’s, Oxo, Bisto, and Batchelors, has seen its share value slide.

Vince Cable, Secretary of State for Business, Innovation and Skills has filed a complaint to competition authorities about the heavily-indebted, St. Albans-based British food manufacturer.

Mr. Cable was shocked at Premier Foods’ behavior after hearing it had sent letters to its suppliers asking for investment money as a pre-condition to remaining on its suppliers list. If anybody wants a clear definition of “extortion”, this must surely be it.

News about the shakedown letter from Premier Foods to its suppliers was revealed in a BBC Newsight TV show. Suppliers described the practice simply as “blackmail”.

According to Newsnight, suppliers have handed over millions of pounds in “investments” in this way.

Premier Foods Pay and Stay

Definition of Extortion: the practice of obtaining something, especially money, through force or threats. Synonyms: blackmail or shakedown.

According to Premier Foods, the practice is not in breach of any competition rules. However, the Government expressed deep concern about the report.

The BBC, which has seen a letter sent by CEO Gavin Darby on November 18 to suppliers, 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. 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 one of the recipients of the letter inquired by email about the requested annual payments, a Premier Foods executive 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.”

Bob Horsley, who has been a supplier to Ambrosia in Devon for over a decade told Newsnight he thought it was like blackmail. “What they are saying is, ‘Unless you pay this money, you can’t do the work.’”

Mr. Horsley, who opted not to pay up and risks being de-listed said:

“I’m just a layman, but I can’t see how that is right.”

Strong-arm bullying for money not uncommon

This kind of supplier-shakedown is not uncommon in British business, apparently. According to the BBC, major UK retailers including John Lewis, Argos, Debenhams and Halfords have sent similar letters.

In a letter to the Competition and Markets Authority, Mr. Cable wrote:

“I am very concerned that this practice is becoming commonplace and is placing considerable strain on already hard-pressed small businesses. I am writing to you, therefore, to request that the Competition and Markets Authority considers the available evidence of these so-called “pay-to-stay” clauses employed by, amongst others, Premier Foods.”

“I appreciate that you can only act if there is sufficient evidence that this issue meets your prioritisation principles.”

Director-General of the Institute of Directors Simon Walker said such practices, at a time when “public faith in business is painfully low,” are simply unacceptable. He added that it “. . . 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.”

Mr. Walker added that lawmakers are right to be concerned. He is worried that some “bad apples” trigger state intervention in UK business, which will be hit by a flood of new regulations.

“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,” Mr. Walker said.

Newsnight Video – Premier Foods ‘pay-and-stay’ practice