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Industry NewsFrito-Lay stops shipments to Loblaw stores​​​​​: A summary...

Frito-Lay stops shipments to Loblaw stores​​​​​: A summary…

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A standoff has emerged between Canada’s largest grocer and one of the world’s largest packaged-goods companies, over the price of potato chips, as reported by the Globe and Mail.

Key takeaways:

  • PepsiCo-owned potato-chip manufacturer Frito-Lay has cut off shipments to stores owned by Loblaw Companies Ltd. 
  • Product suppliers and retailers have been in more intense negotiations in recent months, as inflationary pressures have led suppliers to hike prices for the products that stock the shelves.
  • Michael Graydon, the CEO of Food, Health & Consumer Products of Canada (FHCP) confirmed the cut-off in an interview and said the retailer had refused a price increase of less than 10 per cent.
  • Frito-Lay manufactures brands that include Lay’s, Doritos, Miss Vickie’s and Tostitos.
  • Spokespeople for Loblaw and PepsiCo Foods Canada declined to comment specifically on the matter according to the Globe and Mail, although PepsiCo did confirm it has requested price hikes for its products, citing “unprecedented pressures” as costs rise for ingredients, packaging and shipping.
  • Grocery prices rose by 6.5 per cent in January compared with the same time last year, according to Statistics Canada, an acceleration from the 5.7-per-cent increase reported for December.
  • A manufacturer cutting off shipments to a retailer used to be relatively rare, but such instances have become more frequent in recent months, said Graydon. Such disputes are usually resolved behind closed doors. What is unusual here, he said, is the size of the players involved and the fact that the dispute has become public.
  • Late last year, executives at Loblaw, Metro Inc. and Sobeys owner Empire Co. Ltd. all confirmed product suppliers began seeking price increases in the summer, responding to those pressures.
  • “There’s an enormous amount of concern because several of those increases were way beyond what you would be able to justify because of food inflation and additional costs,” said Diane Brisebois, president and CEO of industry group the Retail Council of Canada, adding that Canadian shoppers are price-sensitive, especially right now. “Grocers are the ones who look customers in the eyes when they price their products.”
  • Disputes over price negotiations are nothing new in the grocery industry. In 2020, for example, complaints were lobbed in the opposite direction when a number of grocers notified product suppliers about hikes in fees the retailers charge for things such as shelf placement and in-store promotions. Continuing tensions between grocers and suppliers have motivated discussions around a code of conduct for the industry.
  • “With current market conditions and the fact that the food inflation rate is north of 6% now, consumers will be trading down and seeking more house brands,” says “The Food Professor” Sylvain Charlebois. “For years, during supply chain games, food manufacturers always had to blink first. PepsiCo’s move signals that the sector is tired of and desperate to stop “supply chain bullying”. And therefore, the industry desperately needs a code of practice, so companies can go to the arbitrator to avoid more market disruptions. This situation affecting the chips section of the grocery store is concrete evidence of how supply chain wars can impact consumers directly. We need supply chain peace; we need an authoritative code. Some may feel they can simply live without PepsiCo products, or other products for that matter. Fair enough but remember: with fewer manufacturing options for grocers come higher retail prices, eventually,” Charlebois concludes.

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