The chips are down: Frito-Lay stops shipments to Loblaw stores over price-increase dispute – The Globe and Mail

A standoff has emerged between Canada’s largest grocer and one of the world’s largest packaged-goods companies, over the price of potato chips.

But the dispute – which has led PepsiCo-owned potato-chip manufacturer Frito-Lay to cut off shipments to stores owned by Loblaw Cos. Ltd. L-T – goes beyond the snack aisle. Product suppliers and retailers have been in more intense negotiations in recent months, as inflationary pressures have led suppliers to hike prices for the products that stock the shelves.

La Presse first reported last week that Frito-Lay had stopped shipments to Loblaw. The chief executive officer of industry group Food, Health & Consumer Products of Canada (FHCP) confirmed the cut-off in an interview on Tuesday, and said the retailer had refused a price increase of less than 10 per cent. Frito-Lay manufactures brands that include Lay’s, Doritos, Miss Vickie’s and Tostitos.

Spokespeople for Loblaw and PepsiCo Foods Canada declined to comment specifically on the matter, although PepsiCo did confirm it has requested price hikes for its products, citing “unprecedented pressures” as costs rise for ingredients, packaging and shipping.

“To help offset these pressures on our Canadian operations and to ensure that we maintain the high quality our consumers expect, we have made adjustments to our prices that are consistent across the marketplace,” PepsiCo spokesperson Sheri Morgan wrote in an e-mail. “We are committed to our Canadian manufacturing and operations and our products remain widely available from coast to coast.”

Grocery prices rose by 6.5 per cent in January compared with the same time last year, Statistics Canada reported last week, an acceleration from the 5.7-per-cent increase reported for December.

Minimizing price hikes for shoppers has become more difficult as cost pressures intensify, Loblaw spokesperson Catherine Thomas wrote in an e-mail.

“When suppliers request higher costs, we do a detailed review to ensure they are appropriate,” Ms. Thomas wrote. “This can lead to difficult conversations and, in extreme cases, suppliers don’t ship us products.”

A manufacturer cutting off shipments to a retailer used to be relatively rare, but such instances have become more frequent in recent months, FHCP CEO Michael Graydon said. Such disputes are usually resolved behind closed doors. What is unusual here, he said, is the size of the players involved and the fact that the dispute has become public.

“Everybody is in discussion because everybody’s impacted across every category in the store – from plastic bags, to potato chips, to cereal, to shampoo,” Mr. Graydon said. “Because of the magnitude of asks – there’s just so many of them – [retailers] are starting to push back. … [Suppliers] are just not going to put their businesses in economic jeopardy by not getting the price increases that are necessary to recoup costs.”

Late last year, executives at Loblaw, Metro Inc. and Sobeys owner Empire Co. Ltd. all confirmed product suppliers began seeking price increases in the summer, responding to those pressures. In a conference call to discuss Loblaw’s earnings in November, chairman and president Galen G. Weston said the company had refused supplier increases that he called “unjustified” or “detrimental to the customer experience,” as teams worked to minimize price hikes on store shelves.

“There’s an enormous amount of concern because several of those increases were way beyond what you would be able to justify because of food inflation and additional costs,” said Diane Brisebois, president and CEO of industry group the Retail Council of Canada, adding that Canadian shoppers are price-sensitive, especially right now. “Grocers are the ones who look customers in the eyes when they price their products.”

Disputes over price negotiations are nothing new in the grocery industry. In 2020, for example, complaints were lobbed in the opposite direction when a number of grocers notified product suppliers about hikes in fees the retailers charge for things such as shelf placement and in-store promotions. Continuing tensions between grocers and suppliers have motivated discussions around a code of conduct for the industry.

But Mr. Graydon, who is part of an industry group that supports such a code, emphasized while the proposed code would include a dispute-resolution process, it would not eliminate such conflicts over price negotiations entirely. He pointed out that retailers and vendors in other markets that do have a code, such as in Britain, have seen an increase in disputes as inflationary pressures mount.

Complicating this dynamic, is the fact that many grocers have invested heavily in producing private-label brands that compete with suppliers. In Loblaw stores this week, the dispute has led to some empty shelves, which the retailer is partly filling with its own house brand chips, said Sylvain Charlebois, a professor of food policy and distribution at Dalhousie University in Halifax.

He says he believes there are more battles to come.

“Inflation is putting way more pressure on that dynamic between grocers and processors,” Prof. Charlebois said. “There’s a lot of tension right now.”

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