Feb 24, 2022
Inflation has been putting strain not just on customer wallets, but on relationships between suppliers and retailers as evident in a dispute between Frito-Lay Canada and the Canadian grocer, Loblaw Companies.
Frito-Lay has halted shipments of products to Loblaws stores and has confirmed that it is in the midst of a “temporary disruption” with one customer, according to a report by The Canadian Press.
The CPG brand pointed to spikes in ingredient, packaging and transportation costs as requiring “adjustments to [Frito-Lay’s] prices that are consistent across the marketplace.”
Loblaw said it was “laser focused” on minimizing price increases, and explained to the Press that, when faced with requests for higher prices from suppliers, the chain conducts a thorough review that, in extreme cases, results in suppliers not shipping products. The confrontation comes in an environment where many of the country’s retailers have contacted the Retail Council of Canada about supplier price increases they see as excessive and say exceed typical food inflation rates.
This is not the first time that Loblaw has come into conflict with suppliers over financial matters.
In October of 2020, as Loblaw was facing pricing pressures and had plans to upgrade its stores and operations to the tune of $6 billion over five years, the chain told suppliers that it would be hitting them with extra fees. The chain stated in the Toronto Star that it was calling on suppliers to absorb the costs so as to keep prices low for the customer. Around that time, Walmart Canada and Montreal’s Metro announced similar measures. Food producers called the moves bullying, and independent grocers claimed they gave big grocers an unfair advantage.
The Loblaw/Frito-Lay stalemate comes as food inflation in Canada has grown to the point where it is impacting the Canadian shopper’s grocery choices.
Nearly half of Canadian shoppers are switching to cheaper brands, one-third are cutting back on meat and one in five are not buying as many fruits or vegetables, globalnews reported.
The Canadian snack food market is projected to grow 5.02 percent annually between 2022 and 2026, according to Statista.
DISCUSSION QUESTIONS: Do you foresee pricing disputes between retailers and CPGs increasing in 2022? What do you think of the claims that CPGs are using inflation as a rationale for padding product margins?
“In a very inflationary environment all sides – retailers, manufacturers, consumers – are going to have to accept some price increases.”
“The question is not if but when we will see more of these disputes. Who is right or wrong in this case is impossible to tell without the ability to fully audit the CPG company”
“Is anyone shocked to think that CPGs might use inflation and supply chain issues as margin increase rationales?”