Dave Peacock, the new president of Anheuser-Busch under InBev, was formerly it’s vice-president of marketing. So he’s no stranger to spin, and boy is he putting his talents to work in a recent interview in the St. Louis Post-Dispatch, in which he tries to explain the rationale for A-B’s new policy of taking four times as long to pay its suppliers “in pursuit of accountability and good stewardship” and states, in a phrase that would make any auditor laugh out loud, “the new terms are not unreasonable.”
Many people might infer from this that A-B has a cash flow problem, and like most companies in our current economic mess, is struggling to obtain short term working capital. So why not force the suppliers, the small businesses that in many cases depend on A-B for their livelihood, to give them the credit they need? That’s in effect what their new policy does, as it provides A-B with as much as a 120-day line of credit that’s equivalent to the amount of money they owe their suppliers. Beyond whatever’s the standard trade payable expectation, most commonly 30-60 days depending on the industry, any amount their supplier has not received and is overdue forces the supplier to take reserves against it. In effect, that takes A-B InBev’s potential cash flow problems and makes them its suppliers’ problems instead. A savvy business strategy, some might say. “Disgraceful,” is what the Brewing, Food and Beverage Industry Suppliers Association called it. And it’s what caused the British business trade group, Forum of Private Business, to add A-B InBev to their “Late Payment Hall of Shame” list.
Under normal circumstances, if a company has short term financing obligations — say, for example, to meet payroll — and they didn’t have enough cash in the bank, they’d draw on their working capital line of credit. But if they either didn’t want to do that or couldn’t do that, another way to create a de facto line of credit is to stretch their trade payables. That’s what the largest beer company in the world, and one of the five largest consumer product companies of any kind, appears to be doing, financing their short term working capital with involuntary interest free loans from their trade creditors, who have little choice but to either accept the new terms dictated to them, or stop doing business with them altogether. At another point in the interview, Peacock says that the “goal is to be collaborative, not dictatorial,” which seems odd considering they’re dictating these new terms to suppliers. But in that quote, Peacock is discussing their distributors, who apparently can be treated differently than their suppliers. Peacock goes on to suggest that distributors simply needed to get to know InBev better since the beer business is such a “people” business, warning that there “should never be a situation where we’re just jamming things down their throat.” Is it just me? Isn’t that exactly what they’re doing with suppliers, taking new terms and jamming them down their throat?
But then Dave Peacock has the stones to say that there’s nothing “unreasonable” in all that. I haven’t heard such tortured use of language and spin since Bill Clinton needed clarification on what the meaning of “is” is. I won’t be surprised to learn that some of the companies eventually go out of business thanks to A-B InBev’s idea of reasonableness, particularly the ones for whom A-B’s business was a major part of their total, and who thus cannot afford to wait four months to get paid so they can pay their own workers. It’s a curious feature of the business culture that powerful corporations demand unquestioning loyalty, but feel not one iota of reciprocal duty to be loyal to their own employees, their suppliers or indeed anyone else, not if those same people get in the way of a profitable quarter. 1,600 of A-B’s St. Louis former employees are looking for work right now, their thanks for being loyal to their employer. That’s over 25% of the work force from a year ago. I guess those people just didn’t have a “chance to get to know them,” before they were thrown out on the street. Now that’s a “‘people’ business.” And I guess using the new business definition, that’s “reasonable,” too.
UPDATE: The Hollywood Reporter has a story tonight about how television ad executives have banded together and are refusing to accept A-B InBev’s attempt to slow pay their suppliers as a matter of policy.
From The Hollywood Reporter:
Ad sales execs are defying an Anheuser-Busch InBev directive that would have them wait as many as 120 days to be reimbursed for airtime, telling the brewing giant to stick its ultimatum where the sun don’t shine.
Sources said all major broadcast and cable nets have condemned A-B InBev’s unilateral order, refusing to comply with what one sales exec called “a shakedown.” The brewer has yet to respond to the opposition, which began fermenting Feb. 5 after A-B InBev sent its media suppliers a letter spelling out the new payment schedule. The industry standard usually is 30 days.
“We’re not going to change our policy for one client because if we let A-B get away with this, everyone’s going to want to push their payments back,” one ad sales boss said. “I’d lose more money by agreeing to this than I would if I cut my price.”
This is certainly an interesting development. Can A-B afford to stop advertising on television? I’d say they can’t, and won’t if they can possibly help it. Will A-B cave in to the television industry’s stand-off as an exception or will this lead to more push back causing InBev to back down completely? This should be worth tuning in to watch.
Unfortunately, this sort of corporate behavior is rather common. I work in sales for a
small firm, and we get these sort of notices from time to time. The best way to respond is
simply to raise prices to account for interest last on the longer payment. As a vendor, the best
way to deal with this is accomodate this by planting your feet and saying “We’ve got a problem,
we’ll have to raise our price if that’s the case.” Not easy to do, that’s for sure. Good luck to
all the A-B InBev vendors out there.
What can you say about such obvious bullshit? I used to work for craft foods and they would cater to a unnamed major corporation that was always “lowering prices”. This company that is spelled in a similar way to stalwart demanded a certain price (which was lower than their competitors) and got what they wanted. To defy these people was commensurate with disloyalty and would be cause for losing their business. I guess if you get in bed with the wrong people you contract the diseases associated with these dominating fiends. Their death-grip on their supplies is being felt, but what can they do?
I’m glad to see the ad sales execs standing up to A-B.
It’s annoying and you’ll be comforted to know these heavy handed tactics often do not work.