The Real Good Food Company (LON:RGD) has made a complaint to the Office of Fair Trading (OFT) over a pricing dispute with dominant supplier British Sugar. It says this will give the firm short term challenges. Proactive Investors spoke to chief executive Pieter Totté (PT) to find out more.
Proactive Investors (PI): I want to talk a little bit about this dispute, and how it will affect the company’s Napier Brown (sugar) unit...
PT: We have a dispute about price, that’s all. As far as supply is concerned that all is as per normal. British Sugar wanted to make a point by putting us on stop if we didn’t do what they wanted us to do, impose us a price and pay up. We have paid all our bills, like we did over the last 20 years, but it was just that extra bit we did. So there’s no trouble when it comes to supply of sugar, it's just that we have a dispute about the price of sugar.
PI: Are there any negotiations going on with British Sugar, and Napier?
PT: We had quite a few negotiations which didn’t lead to anything. We signed a contract last year, for instance, in March about the crop season that starts last year, or six months before. I could clearly see that that would not happen, and that’s why I feel we had to do what we did yesterday, or today, and no doubt something will come out of it.
But the point is, we feel that we need now the OFT to come in and reinforce what they did together with DT Fort in 1990 and that’s all. Because that’s where our business with them is based upon.
PI: Okay, you mentioned the OFT, this is the Office of Fair Trading. That changes to the Competition and Markets Authority (CMA) on April 1. Will this affect the referral?
PT: Well, I think it's a positive point. The budget is much bigger, about £12mln, as far as resources is concerned. It should be a positive point.
PI: What have you been told are the remedies and how long do you think this will take?
PT: Well, remedies are twofold; one is that they have a new interim solution whilst they investigate. The key thing is they have to decide whether they investigate, or not. If they investigate, then the whole game changes. That could take a long, long time.
Then we’ve also been informed that the interim measures that the CMA is planning to do in these sorts of circumstances are different from the old OFT things. That could be in our favour, as I understand it.
But at the same time, based on our experiences in the ‘90s, this is actually not good news in the marketplace, so it needs to be resolved. It needs to bring the party to the table.
PI: This news came within a trading update, how will this affect the numbers?
PT: It has an effect on the numbers, 50% of our business is sugar, and 50% of the 50, so 25% currently, is sugar that comes out of British Sugar.
Although our growth plan brings British Sugar, going forward, to a smaller percentage of our total sales in sugar, particularly if you look at our Immingham plant that has now been re-commissioned. That brings us into a far more competitive position as far as imported sugar is concerned.
So the mitigation is that we’re going to focus far more on the imported sugar, than British sugar, but it's very unfortunate because it shouldn’t be like that.