'Pay-to-stay' deals - where's the harm?

'Pay-to-stay' deals - where's the harm?

Competition analysis:

The news that Premier Foods has received cash payments from its suppliers in return for ongoing business has led to much discussion over the use of 'pay-to-stay' deals. Nicholas Spearing, head of the London antitrust group at Milbank, Tweed, Hadley & McCloy, considers the key issues and finds that the matter is not as clear cut as some critics have claimed.

Original news

Food producer criticised for making suppliers pay to do business.

Daily Telegraph, 5 December 2014: Premier Foods, the producer of food brands such as Mr Kipling, Oxo and Bisto, has been criticised for asking its suppliers to pay money or lose business with it.

What are 'pay-to-stay' deals and what's the possible theory of harm?

Pay-to-stay fees are lump sums paid by manufacturers to become or remain a listed or preferred supplier, usually to a retail chain. Similar payments include 'slotting allowances' (to secure particular shelf space, visibility or access for new products) and promotional contributions (to defray the cost of cut-price offers).

Theories of competitive harm attributed to (at least some) pay-to-stay deals include:

  • increased barriers for smaller suppliers unable to afford the payment
  • foreclosure of competing retailers, as suppliers concentrate on the retailers they have paid
  • higher wholesale prices from the paid-up suppliers, feeding through into higher retail prices, and
  • less money for supplier R&D and quality improvement

Are these arrangements always risky?

The analysis is not straightforward. Supplier payments may benefit consumers through access to a wider range of goods,

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