Food giant 2 Sisters contract proposals 'unreasonable'

2 Sisters is a major supplier of chicken to supermarkets

A major UK food manufacturer is setting "beyond unreasonable" terms in proposed contract agreements, one of its suppliers has told BBC Newsnight.

The firm, 2 Sisters, has been seeking more than four months to pay its bills, a document seen by the programme shows.

It would have also been entitled to a 3% discount for paying within 90 days.

2 Sisters, which produces Goodfella's pizza and Fox's biscuits, said its proposal was only the starting point for a negotiation with its suppliers

It added that on average last year it paid suppliers in 49 days.

The disclosure comes two weeks after Newsnight exposed the use of controversial "pay-to-stay" demands made by Premier Foods to its suppliers. Premier later said its arrangement had been "misunderstood and misinterpreted" but it would "simplify" its practice.

'Prompt settlement discount'

2 Sisters supplies supermarkets including Asda, Tesco, Sainsbury's, Lidl, Aldi and Marks & Spencer and the bulk of its business comes from producing the stores' own-label frozen chicken.

Mr Fenton's firm refused to agree to the proposed terms

The terms and conditions document from 2 Sisters was sent to its own suppliers and has been obtained by Newsnight.

The document suggests it should not have to pay for goods or services until the last working day of the third month after they are received, a potential wait of up to 90 days.

The document further states that if they pay within this period they may be entitled to a "prompt settlement discount" of 3%. Alternatively, if a supplier rejects this option, the default payment period will be extended to 120 days.

In certain circumstances the firm says it should be allowed a further 14 days taking it up to 134 days.

Under the EU Late Payment Directive, firms should not take more than 60 days to settle bills without explicit agreement from a supplier.

One small 2 Sisters supplier, Simon Fenton, told Newsnight his firm had refused to agree to the terms.

Mr Fenton, whose company makes weights, said: "The contract we got from 2 Sisters is unlike anything we've had from any other of our customers. We obviously negotiate terms and conditions with everyone we deal with but the terms and conditions and clauses laid out in the 2 Sisters one were beyond unreasonable."

'Standard business protocols'

2 Sisters is behind the Goodfella's pizza and Fox's biscuit brands

Business minister Matthew Hancock told Newsnight: "It's hard to see how a contract like this can be appropriate or right as a starting point in a negotiation."

2 Sisters said its terms and conditions had since been updated, and suppliers understood it was simply the starting point for a negotiation.

In a statement the company said: "Ultimately, the supplier can choose not to trade on any terms it feels is unsuitable, and we abide by standard business-to-business payment protocols where payment can exceed 60 calendar days as long as this is expressly agreed in the contract."

Own branded supermarket products produced by 2 Sisters include the Tesco Healthy Living range chickens, the Marks & Spencer specialist Oakham brand and Elmwood chicken for the Co-operative.

It also supplies chicken to Greggs bakeries and its fish processing arm handles 8,000 tons of fish per annum which are sold in supermarkets such as Iceland and Morrisons and pub chain JD Wetherspoons.

Professor Karel Williams of Manchester Business School said a document outlining either a 3% discount or a 120-day wait for payment was "pretty gross".

He said that a 3% discount would eliminate half of the net profit margin for a second-tier food supplier and noted that 120 days was twice the maximum of 60 days for business-to-business payments set out in the EU Late Payment Directive.