Supplier Lessons from Premier Foods...
First, I am not a stock broker or financial advisor - so my following thoughts are just "my take" as a businessman on a news story that has surfaced in the last few days...
On the 5th December I saw an article on the BBC Website (must be true then...) stating that Premier Foods were asking their suppliers to pay money to stay on the "approved" supplier list...
Click on the LINK to take a look...
On the 5th December I saw an article on the BBC Website (must be true then...) stating that Premier Foods were asking their suppliers to pay money to stay on the "approved" supplier list...
Click on the LINK to take a look...
Premier Foods owns household brands like Ambrosia, Oxo and Mr Kipling and are one of the biggest food manufacturers in the UK...
Picture Credit - www.premierfoods.co.ukDisgraceful you may say...
This may not be illegal in the UK, but it certainly smacks of being immoral and unethical...
But why would they do it...?
Simple - looks like they are in trouble...
Shares have fallen round 90% in the last 5 years, Q3 sales were down over 4% and they are closing a number of production facilities - sacking up to 900 workers in the process...
They have sold off some of their biggest Brands such as Hovis and Branston to raise cash to pay of their debts; they are under intense pressure from other products and players in the market...
Shares have fallen round 90% in the last 5 years, Q3 sales were down over 4% and they are closing a number of production facilities - sacking up to 900 workers in the process...
They have sold off some of their biggest Brands such as Hovis and Branston to raise cash to pay of their debts; they are under intense pressure from other products and players in the market...
It doesn't look like they have a clear strategy - except that is to screw their suppliers of course...
Their shareholders cannot be happy and the Board are under pressure to turn things around quick - getting cash from suppliers is a simple and effective way of injecting funds into a business, regardless of how it feels, they may have few other choices..
Lessons for Business...
- I learned an important lesson years ago, and that was to not have any customer represent more than 15% of my sales revenue - so I was never dependant upon one client for the survival of my business..
- Watch the share prices and balance sheets of your big customers; bad debts can be predicted based on the financial performance they achieve; if the balance sheet goes bad, and shares plummet - watch out...
- Check the attitude and culture of any company you loan money to through credit terms. Essentially, are they nice people to do business with...? and if they are not then go find some other clients to do business with...
- What is the calibre of the Management Team - I declined a Logistics Contract because I thought the CEO was an idiot. They went bust 18 months later owing 000's to others, but not me...
- If I decided to take on a big account, I made sure we found a few more to dilute their effect and degree of control - avoid being complacent because a Big Client shows up...
Trading with Premier Foods would bother me on a number of levels anyway; the have annual sales of around £850 million and debts of around £1 billion...
They have been selling brands off in order to raise cash but have forgotten that a business can't be built on cost cutting and debt restructuring alone - someone has to sell some products to customers too...
As a shareholder I'd be concerned - as a supplier giving 90 days credit, I'd be really concerned...
So whilst this is a sorry story of decline of a UK manufacturing company, from the suppliers perspective it was all so predictable that alternative sources of income should have been found in the meantime...
Sounds easy - but the reality is different - however, Premier Foods knows that their suppliers are dependent upon them and can therefore demand money, credit and submission in the strangle hold they call a "relationship..."
So whilst this is a sorry story of decline of a UK manufacturing company, from the suppliers perspective it was all so predictable that alternative sources of income should have been found in the meantime...
Sounds easy - but the reality is different - however, Premier Foods knows that their suppliers are dependent upon them and can therefore demand money, credit and submission in the strangle hold they call a "relationship..."
So what should be done...?
First, all the suppliers could collectively tell them to shove it - providing they a stick together, this could work but in my experience getting a collective group to rebel is always tricky...
If Premier Foods is so big to me as a customer that I have to give them the money, then I'd do the following...
Attempt to get higher volume, longer contract and better terms as a consequence of the payment...
Get my Marketing and Sales Team to find me another few clients to replace them so that my position get stronger over time...
Don't put yourself and your business in this position of dependency in what can become an abusive relationship again...
David Holland MBA is the Founder and CEO of Results Rules OK, a Business Coaching, Training and Publications Company with offices in France, Luxembourg and the UK...
To find out more about working with David as you Business Coach, Executive Coach or Team Trainer - just drop him a note to davidholland@resultsrulesok.com for an introductory and complimentary discussion that just could change your life, your business and your results...
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