The MAA has urged agencies to come forward to raise concerns over the practice, after it emerged food giant Premier Foods, which owns brands including Mr Kipling and Oxo, had been making "millions" of pounds from investment payments made by suppliers into the business.
Premier Foods launched an investment payment scheme 18 months ago as part of its strategy to consolidate its supplier base and invest in innovation, promotion and marketing by asking suppliers to make an upfront investment in the business. Suppliers accused the business of forcing them to make payments, or risk being cut off of its supply base.
Premier Foods defended the move
Premier Foods backtracked over the controversial scheme over the weekend and said it would "simplify" its strategy to recoup money and discounts from its suppliers, claiming there was widespread misunderstanding and misrepresentation of the scheme. However, it defended the scheme as "standard business practice."
It would now "simplify" the programme by adopting a "more conventional type of discount negotiation, potentially based on price, value or volume based rebates, or lump sums."
Suppliers should not be forced to foot the bill for management mistakes
However, the MAA hit out at the move and said the review was nothing more than a play on "semantics" which meant suppliers would still be expected to dig deep to offer discounts under a different guise.
MAA MD Scott Knox accused the business of using agency payments as "credit" to fund the business and said that what was alarming was that it had emerged the practice was not just a "Premier issue".
It would now call on the competition authorities to take action over Premier Foods’ requests for payments from suppliers.
"I think it’s more common than we think," he said, "It may have just been packaged up in different ways. In this climate we all want good negotiation – but crikey."
"What Premier has done is a disservice to its peers – it’s a step too far. What will happen now is an unravelling of the process across the sector."
Premier Foods did not confirm whether it intended to recoup money from agency suppliers but one former supplier told Marketing that last year it was asked to make payments of up to 10% of what the agency was earning through its contract with Premier Foods. The payments demanded were, he said, in the region of tens of thousands of pounds.
Another agency said last year it was asked to make payments and that it was "effectively" asked to work for nothing. The agency claimed after it refused to make payments to Premier, which he described as an "aggressive procurement led business", it found itself the victim of even tougher price negotiations.
Labelling it "malpractice", one agency said tightening the screw on the agency supplier base "destroyed" reputational trust and risked long term relationships. Other business should not be forced to foot the bill for management mistakes, he said.
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