Sainsbury’s Bribery Probe
And US Buyer’s Bad Behavior
Point To Need For Discussion
Jim Prevor’s Perishable Pundit, May 14, 2008
The talk of the produce trade in the UK for the past two months has revolved around a very large and public corruption investigation whirling around Britain’s second largest supermarket chain.
The Daily Mail explained it this way:
Sainsbury’s potato buyer arrested in £3m corruption probe
A Sainsbury’s executive is being investigated over claims he received £3million in bribes from a potato supplier.
Buyer John Maylam was questioned by police following raids on homes and businesses in Cambridgeshire and Shropshire.
The inquiry surrounds payments allegedly made by staff at the potato producer, Greenvale, to Mr Maylam over many years.
A second man, Greenvale operations director David Baxter, has also been arrested and questioned.
The allegations raise questions about the murky world of contract negotiations between the all-powerful buyers at the big four supermarkets and their suppliers.
The fact that Sainsbury’s, Tesco, Asda and Morrisons control 70 per cent of grocery spending in the UK means suppliers are desperate to keep the buyers happy.
In the past this has routinely included wining and dining buyers, offering presents and occasional all-expenses paid trips abroad.
However, there have also long been suspicions of under-the-table payments.
Farming industry insiders indicated the investigation at Sainsbury’s could be just the tip of the iceberg.
Mr Maylam had a key role in deciding which firm would be awarded lucrative contracts to supply Sainsbury’s with 190million kilograms of potatoes a year, worth around £130million.
In 2005, he was instrumental in cutting the number of potato suppliers from four to three.
This involved axing MBM of Cambridgeshire and handing extra business to Greenvale, which had to take on 130 new staff to cope. At the time, Mr Maylam said the move would “improve efficiencies” and ultimately help the store to better serve customers.
In 2006, Greenvale, which also supplies Tesco, was awarded the Queen’s Award for Innovation.
At the time, Mr Maylam joined the chorus of approval saying: “I am thrilled…the news comes as no surprise as we have always found them to be particularly progressive in innovation.”
The City of London police are leading the investigation. Sources suggested the £3million figure relates to one year.
If the payments have been made over many years, the final sum involved could be far higher. It appears payments may have been directed through a number of intermediaries.
A police spokesman said: “Police executed and completed search warrants at two residential addresses in Cambridgeshire and Shropshire and two business premises in Shropshire.
“Two men were arrested on suspicion of corruption and money laundering and were subsequently bailed.”
The investigation began after irregular payments were discovered by accountants at Produce Investments, which is Greenvale’s parent company.
The company, which has operations in Shropshire, Cambridgeshire and in Berwickshire, Scotland, is understood to supply about 45 per cent of Sainsbury’s potatoes. Greenvale has suspended a number of staff.
A Sainsbury’s spokesman said: “We can confirm that allegations have been made concerning certain payments and benefits by a supplier to an individual employed by us.
“Following inquiries, we have passed our findings to the police for further investigation.”
Mr Maylam has been a highly influential and respected figure at Sainsbury’s.
The company has often used him to front news of any fresh produce innovations
The allegations are striking. This news report sheds light on the allegation that a potato buyer for Sainsbury’s received the equivalent of almost $6 million in US currency for steering a year’s worth of business to a potato producer known as Greenvale.
We, of course, have no knowledge at all as to whether any of this is true, but we can say that we found few people in the British produce industry even feigning surprise. In fact, most told us that bribery was endemic. Although many characterized it as extortion rather than bribery in the sense that vendors felt they had no alternative but to acquiesce to the demands of powerful buyers.
One senses in Britain a feeling of unease as if everyone is waiting for the other shoe to drop. Wondering if this investigation will lead to others.
We are keeping watch and will let you know.
Bribery was common in the US produce industry a few decades ago. The impact of the problem has been reduced by a number of factors, including the large scale of the industry, the growth of centralized procurement, the development of set metrics that vendors are required to meet, and increases in buyer pay.
Most in the industry do not want to go back.
A little over a month ago, we got some heat for running a piece entitled Tale of Tesco’s Disrespectful Dinner Guest, in which we obliquely profiled an act of abuse by a buyer for a company that supplies Tesco in the US.
Out of respect for our readers, it is perhaps worth explaining why we ran such a piece. The short answer is … because we were asked to write it. Executives from several leading companies, people who are recognized leaders of the industry by virtue of their service on important boards such as those of PMA, United and WGA, approached us.
On the buy side, industry leaders were horrified at such activities, thinking that the very existence of such behavior, especially in a public venue, made every buyer in the industry look bad.
On the sell side, people felt abused. And that a message had to be sent.
But where were such motivated industry executives to turn? The trade associations would find it very difficult to deal with such an issue. In many cases, appealing to the buyer’s employer was either inappropriate or very risky.
So important industry executives turned to us here at the Pundit hoping we would elevate the issue both so that this particular abuse could be reversed and so that the larger issue could be addressed more forthrightly.
We tried to write narrowly to achieve this purpose, which we thought helpful in advancing the interests of the trade. We mentioned the name of no individual, nor did we identify who was sponsoring the dinner. We didn’t even identify what company this buyer worked for. We didn’t define if this involved produce, deli, prepared foods, meat, bakery, dairy or another department.
To those who knew every detail, the article may have appeared scandalous; to most it simply raised the issue of buyer abuse — which is troubling.
Did raising the issue help? Well, it is still unclear how it will ultimately play out. In some small ways, we think so. The vendors who paid for the wine were reimbursed by the buyer. Perhaps that would have happened anyway — we doubt it though. Score one for the good guys.
We received a number of phone calls after the piece ran from vendors who claimed that they had previous experiences with this particular buyer — and they were thankful it was out in the open because next time it would be easier to resist.
To the best of our knowledge, nobody has been fired. But that doesn’t mean much. Accusing an employee of something this serious is a delicate matter, and companies sometimes decide to handle something like this over time. So we will see. Besides, we live in hope and, perhaps, the alleged transgressor has seen the light.
It is not exactly our “regularly scheduled programming,” and we hope to focus on issues that will help build the industry up, not practices that tear it down.
Still, sometimes uniquely, the Pundit can be a catalyst where one is needed, and we won’t shrink from that responsibility.
The United Kingdom is far, but not that far… and this investigation of this Sainsbury’s buyer is a reminder that just beneath a placid sea can swim all matter of threatening creatures.
And if we wait until the consumer papers are filled with stories about $6 million a year bribe payoffs, we will have waited too long.