Premier Foods accused over 'pay and stay' practice

By Laura KuenssbergChief correspondent, BBC Newsnight

Premier Foods, one of the UK's biggest manufacturers, has been asking its suppliers for payments to continue doing business with the firm.

One supplier said the practice - known as pay and stay - was like "blackmail".

Newsnight understands the struggling company has received millions of pounds from its suppliers in this way.

Premier Foods said it was confident the scheme did not break any rules under competition law. The government said it was "concerned by recent reports".

The company, which owns brands like Mr Kipling, Ambrosia, Bisto and Oxo, demanded the payments from suppliers across the country.

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

'Nominated for de-list'

He 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."

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."

But when a supplier raised questions 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."

One of the company's more than 1,000 suppliers, Bob Horsley, said he had been "taken aback" to receive the letter.

Scared to speak out

Mr Horsley, who has had a maintenance contract with Ambrosia in Devon for more than 10 years, 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 decided not to pay and risk losing the contract.

"I'm just a layman but I can't see how that is right."

Another businessman said Premier had previously asked for more than £70,000.

"They know you can't afford solicitors to fight them. I'd never pay anyone for work."

Another said: "It's like a gun held to your head."

Many businesses are scared to speak out for fear of losing their contracts.

'Unjust'

Premier Foods has reduced its number of suppliers dramatically in the last 12 months.

In 2013 it made a similar approach to some of its suppliers.

The practice of pay to stay is not unheard of in manufacturing and retail.

After a competition inquiry, tighter rules were issued for the supermarkets under the Groceries' Code.

But that applies to the relationship between supermarkets and suppliers, not manufacturers.

Liesl Smith, from the Federation of Small Businesses, said: "This is the first time that we have ever seen anything so blatant... in this very direct way before.

"We think it is unjust, it is not competitive and it is not helping the supply chain.

"Premier Foods certainly don't value their suppliers, it's crippling small businesses.

"It's not just going to affect the business owners, it will affect staff as well."

'Support crucial'

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."

Newsnight understands many suppliers have paid a total in the low millions so far.

Competition law states that in some cases, pay to stay can be against the law.

Premier Foods is confident its scheme is within the rules.

Labour bid

But concerns about the wider problem have been raised with the regulator, the Competition and Markets Authority, and this week with the government.

Labour tried to amend the law recently to make the practice explicitly illegal.

Toby Perkins, the shadow business minister, said: "Labour pushed to outlaw companies charging to stay on their supplier list.

"But, alongside steps to prevent customer late payment, they were rejected by the government.

"Building a stronger economy relies on free and fair markets, but where unfair practices emerge, government should be willing to take action as today's revelations appear to expose."

A spokesperson for the Department of Business Innovation and Skills said it was a "hugely important issue" that ministers were taking "very seriously".

"We are concerned by recent reports, and are consulting to assess the evidence so we can establish what more we can do.

"We are also consulting on whether the biggest companies should be required to report publically on whether businesses need to pay to be on their supplier lists."

Newsnight understands that the regulator, the Competition and Markets Authority, is reluctant to commit resources to an investigation unless more businesses are willing to come forward.

Borussia Dortmund boss attacks Premier League's oligarch owners

 

• Chief executive says English game is losing its soul
• Germany's cheap tickets and standing areas show the way

• David Conn in Dortmund
• The Guardian, Sunday 2 December 2012 21.00 GMT

Borussia Dortmund's chief executive, Hans-Joachim Watzke, says that links between fans and clubs in Germany are now stronger than they are in England. Photograph: Gary Calton for the Guardian

 

The chief executive of Borussia Dortmund, who play Manchester City in the Champions League on Tuesday, has launched a passionate defence of German football principles and attacked English clubs' ownership by rich men from overseas.

Hans-Joachim Watzke described German football as "romantic" for retaining its "50% plus one" rule, which requires Bundesliga clubs to be owned by their members. He questioned the ethos and sustainability of Premier League clubs' ownership, including City being owned and funded by Sheikh Mansour of Abu Dhabi.

Of City, a club he visited for last month's 1-1 draw in the first match between the two, Watzke said: "I am a little bit romantic, and that is not romantic. In England people seem not to be interested in this – at Liverpool they are fine for the club to belong to an American. But the German is romantic: when there is a club, he wants to have the feeling it is my club, not the club of Qatar or Abu Dhabi."

Watzke was a prominent supporter of the 50% plus one rule when it was challenged last year by Martin Kind, the president of Hannover. Dortmund are floated on the stock market, but the members elect the president and four members of the club's supervisory board – and also vote to decide major issues of club policy.

"I was the biggest opponent of changing the rule," Watzke said in an interview with the Guardian at Dortmund's Signal Iduna stadium in the build-up to the City match. "Germans want to have that sense of belonging. When you give [the supporters] the feeling that they are your customers, you have lost. In Germany, we want everybody to feel it is their club, and that is really important."

All 36 Bundesliga clubs are owned or controlled by their members, except the historic exceptions of Wolfsburg, owned by Volkswagen, Bayer Leverkeusen, owned by the pharmacy giant Bayer, and Hoffenheim, which is now funded by a single very wealthy entrepreneur, Dietmar Hopp.

Apart from those three and Kind's Hannover, the remaining 32 voted to keep the 50% plus one rule, which was introduced in 2001 when the Bundesliga clubs broke away to run the league competition independently from the German Football Association, the DFB.

"In former times in England I think the relationship between the club and supporters was very strong," Watzke argued. "Our people come to the stadium like they are going to their family. Here, the supporters say: it's ours, it's my club."

Watzke, himself a lifelong supporter of Dortmund, who drew 1-1 with runaway Bundesliga leaders Bayern Munich on Saturday, linked the system of member-ownership and control to the maintenance of affordable tickets and standing areas at top flight German football.

At Dortmund, the 25,000 fans who form the famous "Yellow Wall" standing area in the Signal Iduna stadium's south stand pay just €190 (£154) for a season ticket for the 17 home Bundesliga matches. Season tickets that also include entry to the first three Champions League group games cost slightly more at €220, working out at exactly €11 for each match.

"Here, it is our way to have cheap tickets, so young people can come," Watzke said. "We would make €5m more a season if we had seats, but there was no question to do it, because it is our culture. In England it is a lot more expensive. Football is more than a business."

Watzke argued that Dortmund, who top the group of City, Real Madrid and Ajax while the English champions cannot qualify for the knockout stages, have been able to compete with such clubs thanks to sensible management, coaching and player recruitment, despite not having the resources of a rich individual such as Sheikh Mansour backing the club.

"Everybody told me you cannot play in the Champions League against clubs like Manchester, they have more money. But we are trying to do it ourselves, in our way.

"There are a lot of ways to Rome," he said. "Chelsea have won the Champions League. But Chelsea's question is: what happens after [Roman] Abramovich?"

In the Premier League the endgame of rampant capitalism is being played out

An unsustainable system where the rich win and the poor go to the wall. We see it in English football – and beyond

• 
• • Jonathan Freedland
  • guardian.co.uk, Tuesday 18 October 2011 21.30 BST
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Illustration by Belle Mellor
It's a newspaper convention that the front and back pages are a world apart, as if news and sport inhabit two different spheres with little to say to each other. Indeed, it used to be an article of faith that "sport and politics don't mix", with the former no more than a form of escapism from the latter. And yet the Occupy Wall Street and London Stock Exchange protests that led the weekend news bulletins might not be entirely unrelated to the Premier League results that closed them. For the current state of our football sheds a rather revealing light on the current state of both our politics and our economy. Or, as one sage of the sport puts it: "As ever, the national game reflects the nation's times."
What that reflection says is that Britain, or England, has become the home of a turbo-capitalism that leaves even the land of the let-it-rip free market – the United States – for dust. If capitalism is often described metaphorically as a race in which the richest always win, football has turned that metaphor into an all too literal reality.
Let's take as our text a series of reports written by the sage just quoted, namely the Guardian's David Conn, who has carved a unique niche investigating the politics and commercialisation of football. Conn elicited a candid admission from the new American owners of Liverpool Football Club, who confessed that part of the lure of buying a stake in what they called the "EPL" – the English Premier League – was that they get to keep all the money they make, rather than having to share it as they would have to under the – their phrase – "very socialistic" rules that operate in US sport. In other words, England has become a magnet for those drawn to behave in a way they couldn't get away with at home.
Start with first principles. Of course, inequality is built into sport: some people are simply stronger or faster than others. What makes sport compelling is watching closely matched individuals or teams compete to come out on top.
But a different kind of inequality matters too: money. A rich club can buy up all the best players and win every time. That's the story of today's Premier League, as super-flush Manchester United sweep all before them, challenged only by local rivals Manchester City – now endowed by an oil billionaire – and Chelsea, funded to the hilt by a Russian oligarch. This, then, becomes a different kind of competition, a battle not of skill, pace and temperament but of pounds, shillings and pence. The clearest manifestation of that came at the close of the transfer window, when the biggest teams splashed out millions to buy the top talent. It means the half-dozen top sides, already at a different level from the rest, soared even higher towards the stratosphere and out of reach – in just the same way that the super-rich float ever further away from everyone else, the 1% in a different league from the 99%, as the Occupy protesters would put it.
Nothing you can do about that, says dogmatic capitalism. You can no more stop the richest teams dominating football than you can prevent the fastest sprinter winning gold. That's the force of the market, all but a law of nature.
Except along comes American sport to show us another way. First, there are those rules on revenue-sharing that so frustrated Liverpool's new owners. All the money that, say, a baseball team makes – from tickets, TV rights and merchandise – is taxed by the major league that runs the sport and spread around the other clubs, so that the richest cannot dwarf the rest. That isn't because the titans of Major League Baseball have read too much Marx. It's because they understand that their sport is worth nothing if it stops being a real competition, if only a handful of the wealthiest teams ever have a chance of winning. Redistributing the wealth around the league ensures their sport doesn't become boring. It does not level the playing field, but it comes very close.
The proof is in the stats so beloved of sporting obsessives. Over the past 19 seasons, 12 different teams have won baseball's biggest prize. In the 19 seasons since the Premier League was created, only four teams have won; Manchester United alone have won the title 12 of those 19 times.
It's not just revenue-sharing that ensures true competition. In American football and basketball a salary cap applies, limiting how much each club can pay in wages and thereby preventing the richest teams making their domination permanent by snapping up all the best players. (A "luxury tax" performs a similar function in baseball.) In the same spirit, teams in all major US sports submit to a "draft", in which they take turns picking from a pool of newly eligible players, so that the equivalent of Chelsea or Manchester City can't gobble up all the fresh talent, but instead have to let the Blackburns or Wigans have a go.
Put like that, it seems fantastical. Who can imagine Old Trafford voluntarily snaffling less of the pie, so that clubs in smaller cities with smaller grounds, and therefore weaker gate receipts, get a look in? And yet English football used to work just like that. When the founders of the Football League gathered in a Manchester hotel in 1888, they fretted over how they might ensure that a fixture between, say, Derby County and Everton remained a real contest. They agreed the home side should give a proportion of its takings to the visitors, a system that held firm till 1983.
Clubs shared the TV money when it came too, spreading it around all 92 league clubs. But the big teams always resented subsidising the minnows; indeed, the Premier League was formed out of the biggest 20 clubs' express desire to keep Rupert Murdoch's millions for themselves. That TV money is at least partly spread throughout the Premier League, but now there are noises about ending even that small nod towards wealth-sharing, so that the biggest half-dozen teams can keep every penny for themselves.
Not for the first time, it's fallen to Europe to act. Upcoming Uefa "financial fair play" rules will require teams to live within their earnings, which should put an end to the sugar daddy handouts of Man City and Chelsea. But that 2014 change will push clubs to maximise their revenue, which is bound, in turn, to mean even less sharing. Football will still be a game determined by who has most money.
There are three consequences of this strange gulf between our rules and those across the Atlantic. First, football's most storied clubs have become attractive to foreign tycoons who sniff a licence to print money, unrestricted. Second, we've established a model that is inherently unsustainable, involving colossal debts that cripple all those without a billionaire to bail them out. Since 1992, league clubs and one Premier League team – Portsmouth – have fallen insolvent 55 times. Third, we risk killing the golden goose, turning an activity that should be thrilling into a non-contest whose outcome is all but preordained.
Hmm, a system that sees our biggest names falling to leveraged takeovers – think Kraft's buy-up of Cadbury – thereby selling off the crown jewels of our collective culture in the name of a rampant capitalism that is both unsustainable and ultimately joyless. That doesn't just sound like the state of the national game, that sounds like the state of the nation.