One of Canada’s largest food manufacturers has halted deliveries to the country’s largest grocer over an incident that illustrates the significant impact of inflation on the industry and is driving a wedge between some retailers and their suppliers.
At the heart of the problem between Frito-Lay Canada and the Loblaw Companies is a dispute over the prices the maker of brands like Cheetos, Doritos, Lays, Ruffles and Sunchips charges for its products, in order to recoup the cost increases it is facing. confronted with.
The situation means that the shelves in the chip and snack aisle of several Loblaw stores, or Provigo in Quebec, are less full than usual, or are more stocked with house brands such as President’s Choice or Sans name.
Frito-Lay spokeswoman Sheri Morgan confirmed there was a “temporary disruption” with a customer. “Our business has faced unprecedented pressures with rising costs for things like ingredients, packaging and transportation,” she explained in an email.
“To help offset these pressures on our Canadian operations […], we have made adjustments to our prices that are consistent across the market. »
Loblaw spokeswoman Catherine Thomas said the grocer is “precisely focused” on minimizing retail price increases.
“When suppliers ask for higher costs, we do a detailed review to make sure they’re appropriate,” she explained in an email. “This can lead to difficult conversations and, in extreme cases, suppliers stop shipping products to us. »
The rift between Frito-Lay and Loblaw reflects growing tensions in the Canadian food industry. Many experts say these could worsen as supply chain challenges and inflation continue.
Some argue that grocers are simply trying to keep their list prices as low as possible and prevent suppliers from using inflation to justify unreasonable price increases.
Others suggest grocers are using their market power to intimidate vendors and inflate their bottom line.
“It’s hard that this has turned into such an adversarial relationship,” said Michael Graydon, CEO of Food, Health and Consumer Products of Canada, which represents Frito-Lay and PepsiCo Foods Canada.
“The level of frustration is increasing. »
The increase in wholesale prices that some suppliers are charging retailers will help dampen ongoing inflation, but will not fully offset rising costs, he argued.
The final price consumers pay in stores is set by food retailers, Graydon said.
Overly greedy suppliers?
However, retail industry advocates say food makers are, in some cases, looking for price increases above inflation.
Retail Council of Canada spokeswoman Michelle Wasylyshen said the industry group, which represents Loblaw, was contacted in January by grocery retailers large and small about a wave of new price increases. prices from suppliers.
“This follows an already alarming number of increases in the previous quarter,” she said. “In many cases, the increases are unprecedented and far exceed typical levels of food inflation. »
Statistics Canada reported last week that food prices rose 6.5% in January, recording their biggest annual increase in more than a decade. Food inflation was higher than headline inflation, which stood at 5.1%.
It is difficult to predict what kind of impact the loss of sales in Loblaw establishments, which notably include the Provigo and Maxi brands in Quebec, could have on Frito-Lay.
The company’s products are made in Canada, largely from Canadian potatoes grown by local farmers. Experts say a long-term drop in sales could ultimately hurt local producers.
But they further note that brand loyalty could work in favor of the potato chip producer.
“Frito-Lay is betting that consumer loyalty to their brands gives it leverage to take this step,” said Joel Gregoire, associate director for food and beverages in Canada at market research firm Mintel.
Still, withdrawing supply from Loblaw — which has the largest share of grocery sales in Canada — is also risky for the food maker, he said.
“Failure to fill orders from Canada’s largest grocer will undoubtedly have a substantial impact on Frito-Lay’s short-term sales,” said Mr. Gregoire.
More broadly, he says the dispute seems emblematic of a larger battle for price leverage between grocers and manufacturers.
“This tension is not new, but this decision by Frito-Lay touches on important issues,” he said. “It’s a battle to maintain margins as costs rise. »
Indeed, food expert Sylvain Charlebois pointed out that friction between Frito-Lay and Loblaw was just the “tip of the iceberg.”
Hostility between retailers and manufacturers could worsen in the coming months, he warned.
“It’s not just about potato chips,” said Charlebois, a professor of analytical science in agri-food at Dalhousie University. “We’re also going to see this in other food categories like bakery and dairy. »