Will Carrefour’s withdrawal of Pepsico products have an impact?

by Richa Naidu

LONDON (Reuters) – Carrefour said it had withdrawn Pepsico products from its supermarkets in four European countries because of high prices, a negotiation strategy which could however have little impact given the size of some international brands, according to industry experts.

Retailers have been pulling products from shelves for years in a price fight with suppliers, but the cost-of-living crisis has sparked more disagreements, including a row between German retailer Edeka and US-based Procter & Gamble l ‘last year.

Supermarkets, with razor-thin margins, say they are trying to keep their prices in line with rivals while preventing consumers from facing steep price rises for the most in-demand brands. At the same time, major food and consumer brands have raised their prices in recent years to cover rising costs, and sometimes to strengthen their margins.

Carrefour’s decision comes just over a week before French grocers set their prices for the whole year. The policy has reignited debate over whether retailers can really afford to cut popular products without falling behind their rivals.

“In the short term, (the loss of sales) of retailers and the brand has only a small impact on profitability, but in the end it doesn’t amount to much,” said Bruno Monteyne, an analyst at Bernstein.

“Retailers believe it improves their image and brand with consumers, but I doubt there is any evidence to support this.”

In the past, retailers have discontinued brands only to bring them back a few weeks or months later and accept price increases.

Procter & Gamble, the maker of Tide detergents, told Reuters in November that German consumers could still find its products on Edeka shelves.

The British supermarket group Tesco increased the prices of 11 Colgate products by an average of 28% last March, according to the specialist magazine The Grocer, in order to avoid a new price conflict with the toothpaste manufacturer as it s t is produced in 2022. That year, Tesco also clashed with Kraft Heinz for a few weeks. Tesco did not immediately respond to a request for comment.

“Most often, (product withdrawal) is temporary and does not have a significant impact on the group sales of geographically well-diversified companies,” said Tineke Frikkee, portfolio manager at Waverton Investment Management, which invests in Unilever and Reckitt Benckiser.

“The only retailer for which this could be significant would be Walmart, the largest American retailer, which would have an impact on sales. For Pepsi, the fact of not selling at Carrefour in France is not likely to dent the company’s profits. group, and for Heinz, we would not have spotted their dispute with Tesco in their finances.

Campbell Soup reported in 2017 that it was having difficulty agreeing on a promotional strategy with Walmart which resulted in a 9% decline in its canned soup sales in the quarter ended October 2017.

THE FRENCH CONTRIBUTION TO GLOBAL BRANDS

The French market is vital for some consumer goods companies. According to research firm IBISWorld, France has long outpaced Germany, Italy, Spain and other countries and is the largest market in the European Union in terms of supermarket turnover.

France represented just over 8% of the sales of the chocolatier Lindt in 2022, according to the group’s annual declaration, and contributed 7% to the turnover of the hair product manufacturer Schwarzkopf Henkel in 2022, according to the analysis of Nielsen data by Barclays.

In other sectors, however, French income is low.

In 2022, the country accounted for just 1% of Pepsico’s sales, about 4% of Nestlé’s sales and roughly 4% of Unilever’s sales, according to data provided by Nielsen.

Carrefour announced to its customers in four European countries on Thursday that it would no longer sell products such as Pepsi, Lay’s and 7up because they were too expensive.

The profit margins of consumer goods companies like Nestlé and Unilever have been between 16% and 18% for several years, while those of many retailers do not exceed 10%.

The French government and several retailers, including Carrefour, last year criticized companies including Nestle, Lindt, Henkel and Unilever for steep price hikes ahead of contract negotiations.

Michel-Edouard Leclerc, the head of France’s largest supermarket chain, E. Leclerc, also called on all major consumer goods companies on Friday to lower their prices.

Pepsico did not respond to a request for comment. Henkel and Unilever declined to comment.

(Reporting Richa Naidu; French version Dagmarah Mackos, editing by Zhifan Liu)