Grocers are digging in against a wave of suppliers looking for more money as food prices rise more than 7%
Publishing date:
Mar 30, 2022 • 2 days ago • 4 minute read • 17 Comments
PepsiCo Inc, the parent of Frito-Lay’s, hasn’t sent brands from its food division to Loblaw’s network of more than 2,400 stores since Feb. 12. Photo by Luke Sharrett/Bloomberg Loblaws and Frito-Lay are still fighting over the cost of potato chips, more than six weeks after the snack giant cut off Canada’s largest grocer for refusing to pay a higher price for its product.
Advertisement 2 This advertisement has not loaded yet, but your article continues below.
The standoff has opened a window into the private negotiations between grocers and suppliers, at a time when both sides are grappling with the most intense period of inflation in a generation. It’s not totally uncommon for suppliers to stop shipments when negotiations break down, though the disputes are usually resolved within a matter of days or weeks — often before consumers start noticing.
Not this time. The spat between Frito-Lay’s parent company, PepsiCo Inc., and Loblaw Companies Ltd. has played out in public from the start, thanks to a report in La Presse last month, which could be putting added pressure on the negotiations.
PepsiCo hasn’t sent brands from its food division to Loblaw’s network of more than 2,400 stores since Feb. 12. In a statement last month, the manufacturer said it was asking for more money to offset “unprecedented” rises in the cost of ingredients, fuel and packaging. But Loblaw said it’s been flooded with similar requests from suppliers across the country and needs to stay “laser focused” on minimizing costs, as food inflation builds to a 13-year high. Senior executives from both companies are still in regular discussions, but have yet to reach a deal, leaving Loblaw’s snack aisles looking much different than they did two months ago.
Advertisement 3 This advertisement has not loaded yet, but your article continues below.
PepsiCo’s food division is made up of Quaker Oats Co. and Frito-Lay, an expansive roster of products that includes Lays, Doritos, Tostitos, Ruffles and Miss Vickie’s.
To fill the hole, Loblaw has relied more on its store brand of chips, as well PepsiCo’s competitors, including Old Dutch Foods Inc. and Neal Brothers Foods Inc., based just outside of Toronto in Richmond Hill. At the same time, Loblaw’s competitors appear to have started promoting PepsiCo snack brands in attempt to steal market share, said Michael Graydon, head of Food, Health and Consumer Products of Canada (FHCP), an industry lobby group.
But Loblaw has been able to hold out, in part because it’s a dispute about chips, said Gillian Kerr, a former marketing executive at Empire Co. Ltd.’s Sobeys grocery chain and Metro Inc. Customers wouldn’t be as patient if the spat was jeopardizing the supply of something more important. Loblaw “wouldn’t have done this with milk,” she said.
Advertisement 4 This advertisement has not loaded yet, but your article continues below.
The move to stop shipping products was once considered to be the “nuclear” option for suppliers, especially with a company like Loblaw, the biggest member of Canada’s grocery oligopoly, controlling about a third of the country’s grocery market.
But withholding shipments is becoming more common, as cost pressures build up throughout the supply chain, said Graydon of FHCP. “It’s brutal out there,” he said.
The PepsiCo-Loblaw dispute isn’t the longest example of a supplier withholding shipments, but “it’s not the norm,” Graydon said.
Late last year, for example, the global food manufacturer Mondelēz International Inc. stopped sending products from its biscuit category to Loblaw, including Oreo and Ritz, as part of a price dispute, a source confirmed. Mondelēz ended shipments for about a week and a half before negotiators came to an agreement, according to the source, who wasn’t authorized to speak publicly about the deal.
Advertisement 5 This advertisement has not loaded yet, but your article continues below.
Mondelēz didn’t answer questions about the situation, but said in a statement that rising costs across the business “necessitated our price increase.” In response to questions, Loblaw said it wouldn’t comment on “confidential business negotiations,” and instead issued the same statement it used for the PepsiCo dispute, explaining that the company conducts a review of each price request to determine whether it’s justified. “This can lead to difficult conversations and, in extreme cases, suppliers don’t ship us products,” spokesperson Catherine Thomas said in an email.
More On This Topic Potato chip giant Frito-Lay cuts off Loblaw in dispute over price hikes Frito-Lay vs. Loblaw fight underscores importance of grocery code of conduct negotiations, leaders say Frito-Lay’s standoff with Loblaw ends up flooding an Ontario chip company with new orders This advertisement has not loaded yet, but your article continues below.
Article content Grocers are digging in against a wave of suppliers looking for more money, with a top retail lobbyist suggesting that some suppliers could be using rising inflation as an excuse to raise their prices. “You start wondering,” Diane Brisebois, CEO of the Retail Council of Canada, said in an interview last month.
RCC said grocers are facing increases from “big international food companies, many of whom dwarf even the largest Canadian grocers” in size. “Grocers across Canada continue to do everything in their power to ensure that Canadians have access to food, choice and competitive pricing,” RCC spokesperson Michelle Wasylyshen said in a statement this week.
Food prices in stores rose 7.4 per cent in February, compared with last year, driven by higher commodity and fuel costs, according to the latest update of Statistics Canada’s consumer price index. Food inflation was the highest in almost 13 years.
This advertisement has not loaded yet, but your article continues below.
Article content In its last earnings report, on Feb. 24, Loblaw said it expects to boost profits in 2022, predicting that earnings per share will increase by “low double digits.” Meanwhile, Frito-Lay North America’s fourth-quarter operating profit increased 10 per cent year over year, according to PepsiCo’s latest earnings report.
A key difference in the PepsiCo-Loblaw dispute is how quickly it had an impact on shoppers in stores. Within days, shelves were picked clean of Frito-Lay snacks, likely because of Frito-Lay’s approach to delivery. The company uses its own team of drivers, who bring product to individual stores and stock the shelves themselves, rather than shipping product in bulk to a grocer’s massive distribution warehouse. That means Loblaw didn’t have a cache of Frito-Lay stock left in its system when shipments stopped. So shelves emptied fast.
• Email: jedmiston@nationalpost.com | Twitter: jakeedmiston
Financial Post Top Stories Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.
By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300