Carrefour has delisted PepsiCo items in France, Belgium, Italy & Spain, and chosen to make its stance public.
It’s not unusual for suppliers and big retailers to fall out over pricing and listings; it is unusual for their dirty linen to be aired openly.
As with all disputes, and seeking to solve them, one has to understand the context.
Carrefour is the number two retailer in France and Belgium with around 19% share. The leader is Leclerc. Carrefour is also fretting about the inexorable growth of discounters like Aldi, who now has around 11% share.
Plus shoppers are facing a cost of living crisis and aren’t that loyal. A common supermarket tactic is to aggressively undercut prices on signature brands to drive shopper traffic.
Last Autumn, Carrefour decided to go to war over Shrinkflation, calling out suppliers who downsized product sizes, but held prices.
“Shrinkflation
This product has seen its size reduced and the cost charged by our supplier increased
We are actively engaged in renegotiating this price”
Pepsico is a famous company, however it plays in carbonated beverages, potato chips and breakfast cereals. I do not know its exact market share in each of these categories in France, Belgium, Italy & Spain but I don’t believe it’s the leading player. This reduces its negotiating power.
Bernstein analyst Callum Elliott estimates that Carrefour stores in France, Italy, Spain and Belgium represent 0.25% of PepsiCo’s global revenue.
PepsiCo is keeping tight lipped. In the court of public opinion, a large American company pushing through aggressive price increases against the French shopper is never going to win converts.
How can manufacturers justify price increases?
Weben work with suppliers on managing and growing relationships with retail customers. Here are 5 rules we encourage clients to follow:-
Rule 1: Develop a customer P&L
Historically, even in the largest companies, it was often the GM or marketing who controlled the P&L. In the last 10-15 years more companies have customer P&Ls. However ‘more’ does not mean ‘all’. You would be surprised how many clients I’ve met who don’t know whether their largest customers are ‘profitable’. How can you decide on pricing without knowing internally whether the business makes sense commercially?
Rule 2: Legitimise price increases
No one likes price increases. However prices do increase for various reasons. It may be freight costs, it may be an exchange rate issue, it may be climate related resulting in crop/ingredient shortages. The list goes on. Suppliers need to be able to demonstrate legitimately what’s driving cost.
Rule 3: Prepare insight on price increases
Clever suppliers have data on price increase impact. This could be straightforward like a graph showing when was the last time price was increased and how the manufacturer ’absorbed’ various cost drivers like price on a key ingredient. Or, the insight could be about price elasticity and the impact on shopping behaviour. Not all categories are as price elastic as you may imagine. Many retailers are assessed on category margin which can be impacted heavily through aggressive price discounting.
Rule 4: Consult finance & supply chain
There are many other factors besides simply product cost which drive customer profitability (and pricing). Logistics costs specifically minimum order quantities, container versus pallet deliveries, stock holding and returns may account for 10-15% of cost. There are initiatives suppliers and customers can follow together to maximise efficiencies.
Rule 5: Prepare negotiation map
There are many variables in a price negotiation. The shopper and the media only see one, which is the retail/on shelf price. Out of view are the retail margin, costs for promotions, listing fees, retail media and many more. Canny suppliers have constructed a detailed negotiation plan knowing what they can concede where, for what value. Of course the negotiation map goes hand in hand with the customer P&L.
Which brings us back to Carrefour. Carrefour isn’t just sending a message to PepsiCo but its entire vendor base.
If PepsiCo believes its price increases are justifiable it may choose to play for time. A week is not just a long time in politics, it is also true in retail.