Premier Foods is to “simplify” its controversial practice of demanding suppliers, which include agencies, make annual cash payments or risk losing their contracts following a backlash from the advertising and business industries.
Rather than asking for up-front payments, the Mr Kipling owner said it would shift to a more conventional scheme potentially based on price, value or volume based rebates, or lump sums.
The changes could affect how Premier Foods charges agencies in future with the business claiming it will support “strategic partnerships with a smaller group of suppliers” and drive growth “over the medium term”.
Paul Bainsfair, director general of trade body the Institute of Practioners in Advertising, warned Premier Food's revised approach would not prove favourable for agencies. Agencies that currently work with the company on marketing its brands include JWT and McCann London.
“If Premier are saying that they are seeking discounts linked to volume, from their suppliers, then that is a matter between the supplier and Premier," he added. "Only they would know if such a thing makes any business sense. If, on the other hand, discounts are a condition of doing business with Premier, it’s hard to see how this is any different from a pay-to-stay scheme. When it comes to dealing with advertising agencies this type of approach is extremely short sighted as well as being beyond the pale. If agencies accept these terms then they are bound to look at ways of economising – Premier will not get the best people or the best service."
The food maker's u-turn on how it handles supplier contracts comes just days after the BBC revealed it had received millions of pounds from the controversial process.
The IPA slammed the “exploitative" programme at the time, while the business secretary Vince Cable said it was “downright unfair”. Despite the criticisms, Premier Foods defended the pay-to-stay scheme and said it had been “misunderstood”.
Gavin Darby, chief executive of Premier Foods, said: “Over the last few days it has become apparent that this mechanism has been widely misunderstood and misinterpreted. Our ‘invest for growth’ programme has worked well for us over the last 18 months in allowing us to consolidate our supplier base and invest in innovation, marketing and promotions to support our brands. Many of our suppliers have chosen to invest with us and have grown their business as a result, despite the challenging market environment.
“Most companies look for value from their suppliers and will commonly negotiate discounts or lump sums wherever they can which will be offered and accepted by suppliers if they believe their business will benefit. This is standard business practice. The investment payments we have requested from our suppliers are effectively just one form of discount of which there are many different types."
Premier Foods has been demanding additional payments from suppliers since last July, using it as a key part of a cost-efficiency drive which also saw it slash the number of companies it works with from 2,800 to 1,230 in the period. Suppliers have been happy to pay the additional fee, according to Premier Foods, which it added is standard business practice.
However, the process has not gone down with all the company’s agency partners. In 2013, Starcom MediaVest resigned its media account as a result of being made to pay tens of thousands in upfront fees to remain on its roster.
According to BBC’s Newsnight, Premier Foods had made "in the low millions" from the programme so far.