Carrefour has decided to suspend marketing products supplied by PepsiCo. The decision will affect 9,000 stores in four nations. Carrefour operated 14,400 stores worldwide at the end of 2022.
In France it is customary for retail chains to negotiate prices with suppliers during January of each year. The process is subject to oversight by the Departments of Agriculture and finance to restrain inflation. Discussions between major suppliers and retail chains determine both wholesale and retail prices. The process is also intended to extend preferences to farmers and producers in France.
The impact of COVID restrictions in 2020 through 2021with disruption of supply chains led to severe food inflation in France that was reflected at the checkout counter. The political fallout resulted in the Government “suggesting” that negotiations should be advanced to fourth quarter of 2023. Obviously supermarket chains have actively pressured suppliers for a rollback to pre-COVID prices.
The decision by Carrefour will probably be reflected in negotiations with other suppliers and it is anticipated that the suspension of PepsiCo may lead to similar action by other chains.
Ramon Laguarta, Chairman and CEO of PepsiCo responded to questions concerning pricing in an October 10th 2023 investor call. He stated, “We have been making decisions around affordability making sure that our brands continue to be within affordable price points to consumers.” He added, “We have been reducing portion size of our products and making sure that we are still affordable.”
Pressure by supermarket chains in the U.S. has resulted in an upsurge in private brands that compete favorably on price with consumer recognition of equivalent quality. The situation facing packaged food manufacturers is illustrated by the recent results of ConAgra Brands. In their published figures for Q2 fiscal 2024 ending November 26th 2023, the International Segment reported a decline in operating profit from $24 million to $6 million on revenue of $280 million compared to $260 million, compared to the corresponding second quarter of fiscal 2023. Buying pressure by retail chains has reduced margins with the benefit passed on to consumers in a competitive environment.