Grocery Price negotiation

First Heinz, now Whiskas face off against Tesco in price battle. The implications are global

Executives across the consumer products and grocery industries globally are watching closely the emerging battle between Heinz and now Mars petcare with Tesco.

On the surface the issue is just about price increases. Underneath, the issues are deeper: the profitability of doing business with large grocers who can account for over 30% revenue; brand strength and knock-on disputes between large branded players and global retailers. 

Battles between suppliers and retailers are not unusual. Making them public is.

In markets where the retail trade is highly concentrated, Australia is one example, who blinks first in the UK has repercussions with Woolworth or Coles, both of whom are renowned for taking a forensic approach to price increases. 

The dispute is also about a shift in power away from large grocers to cut price discounters.

Tesco’s refusal to countenance price increases is less about whether the supplier can justify the price increases per se, but more about its own competitive pressures.

Unloved and often downplayed by many branded goods manufacturers, chains like Aldi and Lidl have consistently been eating share from the high street Grocers. Just last month in the UK, Aldi leapfrogged Morrisons to become the fourth largest chain.

Marketers, especially those from big brand name companies, focus on big retailers like Woolworths, often blissfully ignoring the growth of Aldi in their own back yard. Australia has long been seen as a Woolworth/Coles duopoly, but look at any shopper data and you’ll see Aldi is flexing its muscles there too.

Photo: Marques Thomas

Heinz and Mars have the financial strength to play a long game, especially Mars which is privately owned and lacks public shareholder pressure. Pet care is also a very high margin category, and a category that has one of the highest levels of brand loyalty in grocery.

Tesco executives may believe the tussle supports their narrative of helping shoppers; it claims to match prices on more than 600 items sold by Aldi. However this thinking implicitly acknowledges Tesco is not the cheapest. Shoppers aren’t fools and may simply go elsewhere.

Heinz and Mars want this topic off the front pages, further publicity aggravates the retailer; and cash strapped shoppers are hardly sympathetic to their plight.

Who will win? I don’t see much upside for Heinz, Mars or Tesco, especially if the dispute drags on. Whereas if I was an Aldi executive I’d be smiling.

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