The Potato Chip War | The Press

PespiCo Canada’s decision to stop selling to Loblaws in recent weeks reveals a much bigger problem within the food industry and consumers may end up paying the price.

We recently learned texts from Marie-Eve Fournier and Nathaëlle Morissette from The Press^⁠1 that Frito-Lay, a brand owned by giant PepsiCo Canada, chose to stop selling to Loblaws after the retailer refused to comply with Frito-Lay’s demands to raise prices. This is not the first time that such a situation has occurred, but this time, the scale of the gesture and the number of products concerned strike the imagination.

Inflation has violently disrupted manufacturers who must raise prices. They simply have no choice. But PepsiCo’s stop-sale strategy exposes the fed up of food processors in Canada with distributors changing the rules to their advantage.

Unlike other industries, food suppliers have to pay their customers to do business. Weird, but this modus operandi has always existed. Such a strange environment for the neophyte! But in recent years, grocers have arbitrarily charged higher fees and, in some cases, lowered suggested prices without consent, a nightmare for manufacturers demanding some degree of market discipline to protect the value of their brands.

The last thing a manufacturer wants is a price war that often kills a market. If things became free, we wouldn’t create a lot of economy or jobs to support Canadians. Thus, peace and order within the supply chain is essential to our entire food philosophy. Frito-Lay products are made in Canada from Canadian potatoes grown by our Canadian farmers. The balance between the links in the supply chain remains incredibly fragile and must be maintained.

This rift between PepsiCo Canada and Loblaws was long anticipated and it was only a matter of time before news broke. And make no mistake, many other manufacturers and other grocers indulge in some similar quibble. Whether for milk or bakery, several Quebec and Canadian companies are affected by this price war.

Canadians may be intrigued by the news. Why would anyone blame Loblaws for wanting to keep prices lower for consumers? Well, the answer is not simple. For the grocers, the game is easy, because they have all the power in the world. Nearly 90% of all the food Canadians buy is sold by just five major chains. Grocers want to stay competitive and will defend their profit margins as best they can against their rivals. If Loblaws gets a lower price, that doesn’t mean Canadians benefit.

But don’t expect empty shelves in the potato chip aisle or other aisles of the grocery store anytime soon. We may see some, temporarily, but it won’t last. Grocers will find a way to stock shelves with other brands, probably by their own house brands. With current market conditions and food inflation above the 6% mark, consumers will be looking for lower prices and opting more for house brands. Grocers know this, so maybe now is the time for them. We must not forget that they hold the power and have many weapons at their disposal.

Since the start of the pandemic in 2020, many food manufacturers, including PepsiCo Canada, have thought about selling food directly to consumers. The pandemic has made the supply chain more open and inherently more virtual. When it comes to in-store merchandising, PepsiCo Canada is one of the best companies out there. It masters the “thousand intermediaries” to support the placement of in-store products for grocers. The company demonstrates incredible efficiency. It could expand its already large fleet of trucks to connect its factories to consumers. But the transition from business-to-business to business-to-customer is never easy. Many companies have failed miserably during the pandemic trying to pivot their businesses. However, problems with distributors could encourage some to move forward.

For years, when it comes to supply chain games, food manufacturers have always had to turn a blind eye first. PepsiCo’s decision signals that the industry has had enough and is desperate to end the “bullying” that plagues the supply chain. And therefore, the industry desperately needs a code of practice, so companies can go to an arbitrator to avoid further market disruption. This situation affecting the potato chip aisle in the grocery store is concrete evidence of how wars within the supply chain can directly impact consumers. We need a peace, an authoritarian code to establish greater discipline.

Some may think they can just live without PepsiCo products, or other products, for that matter. Maybe, but remember that with fewer suppliers, retail prices are bound to be higher for any product.