A woman shops in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.
Lucy Nicholson | Reuters
Long before shoppers fill up their carts with hot dogs or detergent, supermarkets and suppliers negotiate — and sometimes clash — over how much the products should cost.
Those delicate discussions spilled into public view this summer when Kraft Heinz proposed price hikes of as much as 30% on its foods in the United Kingdom, ອີງຕາມການ Guardian ໄດ້, as people cope with rising costs for housing, energy and more. When British supermarket giant Tesco pushed back, it stopped getting shipments of Heinz products such as ketchup and baked beans.
The two companies, which later struck a deal, did not respond to requests for comment.
A similar dynamic is heating up in the U.S., as retailers and consumer packaged goods companies get squeezed by higher costs for fuel, materials and labor. Companies have to walk a tightrope of keeping prices high enough to drive profits, yet low enough to hold on to customers. That can fuel tense discussions as retailers and their suppliers hash out how much of their extra costs to pass on to shoppers.
“It’s like buying a car,” said Olivia Tong, an analyst for equity research firm Raymond James who covers consumer packaged goods. “Normally, there’s some bit of negotiation. When it’s any major price move, there’s always going to be a little like, ‘Oh, no, that’s too much.’ And then you finally get to a happy medium where nobody’s happy.”
Feeling the squeeze
Company profits — and household budgets — are under pressure because of higher costs.
Inflation has climbed at the fastest pace in decades, hitting grocery stores particularly hard. Food prices have soared by 10.9% over the past 12 months as of July. Many items have jumped far higher. The price of eggs is up 38%, coffee is up more than 20%, lunchmeat is up 18%, and peanut butter is up about 13% over the past year.
Beyond price hikes, manufacturers are scrambling to find ways to cut costs or boost profits in ways people won’t notice as much. For instance, suppliers can speed up manufacturing, load up each truck with more goods and shrink the size of a package, a practice known as “shrinkflation.”
Retailers are feeling the squeeze too. Walmart ແລະ ເປົ້າຫມາຍ ມີຢູ່ແລ້ວ cut their profit outlooks for the year and will shed light this week on how their businesses are faring when they report their quarterly earnings. Walmart is among the companies that have taken a hard look at ways to improve profits and keep prices down.
In early July, Walmart CEO Doug McMillon told reporters that the retailer is talking to suppliers about finding “an innovative way to avoid cost increases,” such as changing packaging and placing orders earlier. But if that doesn’t work, he said Walmart has another lever it can pull: turning it into a competition.
“So we will say to a group of suppliers, ‘Here’s what we’re trying to achieve. Which one of you wants to help us?’ And some suppliers will lean in and find a way to grow market share or in some way provide value to the customer that helps us not have to pass something on to a customer.”
Makers of toilet paper, frozen meals and salty snacks have offered few details about how conversations around price hikes have gone with retailers — but acknowledge they don’t make anyone happy.
“Nobody is pleased about the continued inflationary trends that we’re seeing,” Andre Schulten, chief financial officer of consumer goods giant Procter & Gamble, said in late July on an earnings call.
P&G said price hikes aren’t covering all the higher costs across its portfolio, which includes Pampers diapers, Pantene shampoo and Tide laundry detergent. So far, the company hasn’t seen shoppers trade down as much as it expected, but it’s waiting for the other shoe to drop.
Some manufacturers have argued that without price hikes, future sales could be in jeopardy. Conagra Brands has told retailers that if it can’t maintain its profit margins, then it can’t invest in creating new or upgraded products, CEO Sean Connolly said at the company’s investor day.
Price hikes can alienate customers, too. About 56% of Americans feel companies are raising prices more than needed in order to boost profits, according to a late July survey of more than 1,000 consumers by consulting firm Deloitte.
It isn’t just consumers pointing fingers. President Joe Biden’s administration has blamed big meat and oil companies for inflation, shaming the two industries for their high profits. Both industries have pushed back, blaming high demand, supply constraints and labor shortages instead.
A carrot-and-stick approach
ສະຖານະການທີ່ຮ້າຍແຮງທີ່ສຸດ
After Brexit, Tesco also found itself in a stalemate with Unilever over price hikes on Magnum Ice Cream bars, Marmite, Hellman’s Mayonnaise and other food items. Unilever and other food suppliers were experiencing higher costs, but Tesco didn’t want its customers to pay the price. It took several months — and more promotional spending from Unilever — to end the stalemate.
Earlier this year, Canadian grocery giant Loblaw’s pulled Frito-Lay’s products from its shelves over a pricing dispute. For two months, Canadian consumers couldn’t find Cheetos, Doritos or Lay’s ketchup potato chips.
In the United States, manufacturers gained more power to raise their prices over the last year because they could point to specific costs rising, such as for sunflower seed oil or coffee beans, according to Harris. Retailers pushed back much more when inflation was low and relatively stable.
Now as some shoppers start to buy less or reach for cheaper brands, Harris said, the pendulum is swinging back to favor retailers. Suppliers might fight back but ultimately need their products on shelves.
Source: https://www.cnbc.com/2022/08/15/stores-suppliers-fight-over-price-hikes-as-inflation-squeezes-shoppers.html