Kroger Bows To Supplier Pressure On Payment Policy

Food retailer Kroger is reportedly backtracking on a previous decision to extend payment terms to 90 days for suppliers, following an outcry from the industry.

Reports on Wednesday (July 11) said Kroger is reversing the 90-day payment policy, noting that suppliers protected under the Perishable Agricultural Commodities Act (PACA) — which has a provision that requires buyers to hold product assets in a trust for unpaid suppliers — are not required to commit to the 90-day payment terms.

Kroger’s Senior Manager of Enterprise Sourcing Finance Matt P. Hodge, CPSM, sent a letter to the USDA’s PACA Division Director Judith Wey Rudman and declared that Kroger suppliers are “essential partners for shared success.”

“Our product suppliers received a letter outlining our recently modernized payment terms and supply chain finance opportunity,” he said. “We’ve shared with individual product suppliers that we will respect existing contractual and legal mandates, including PACA. I’d like to take this opportunity to clearly state that product suppliers protected under PACA are not required to participate in Net 90 payment terms. For those PACA-eligible product suppliers who are interested, we will continue to negotiate for payment terms that are permitted within their PACA trust rights.”

Kroger’s 90-day supplier payment decision, announced last month, was met with swift backlash from the National Association of Perishable Agricultural Receivers (NAPAR) and others. At the time, industry consultant Dick Spezzano said, “The banks will not like this at all and would probably increase their interest rates in response” for suppliers that would likely look to borrow more from those banks. With Kroger’s current pay practices, it buys, receives, ships to its stores and sells the produce four to five times before it pays for the first shipment. With this new pay practice, that would probably extend out to 12 to 15 times before they pay for the first shipment.”