At the start of January, Carrefour pulled high-profile brands owned by PepsiCo – such as 7Up, Doritos and Quaker – from its shelves in a clutch of European markets.
PepsiCo had signalled in October that “modest” price rises were coming (without specifying the markets).
Without disclosing the size of the price rises PepsiCo has demanded of Carrefour, the retailer has labelled the US giant’s requests “unacceptable” and is no longer selling the US giant's products in France, Spain, Italy, Belgium and Poland.
In response, PepsiCo has said: “We’ve been in discussion with Carrefour for many months and we will continue to engage in good faith in order to try to ensure that our products are available.”
Associate analyst Kacper Pilarski and lead consumer analyst Zoe Mills, both of Just Food’s parent company GlobalData, discuss what factors may lie behind the dispute, the price sensitivity of French consumers and the potential opportunity for Carrefour’s own-brand products.
What’s the backdrop for the dispute between Carrefour and PepsiCo?
Kacper Pilarski: In 2023, France endured a year of persistent high inflation, not least in food. The final month of the year saw food inflation ease a little but remain above 7% at 7.1%.
The ongoing food inflation seen in France last year shone a spotlight on manufacturers’ pricing strategies, especially their moves to practice so-called ‘shrinkflation’: reducing the size of a product while maintaining its price.
Shrinkflation, common across markets for years, sparked criticism of suppliers operating in France. Carrefour was central to bringing French consumers’ attention to the practice; in September, the retailer affixed “shrinkflation” signs onto store shelves to point the finger at brands they said were reducing the size of packs but not prices.
One of those suppliers was PepsiCo, so, in some ways, the row between the two companies over price is unsurprising. However, the geographic scope of the dispute has raised eyebrows and will be sure to be a topic of discussion when PepsiCo announces its 2023 results on 9 February.
According to the Wall Street Journal, PepsiCo contends that the supply disruption was a result of stalled contractual negotiations and the absence of a new agreement led them to cease supplies to Carrefour at the end of 2023.
Carrefour maintains it decided to discontinue the products. Regardless of the conflicting narratives, the impasse is the latest sign of tension between suppliers and retailers in France.
Intermarché has been another retailer that has called out instances of shrinkflation.
However, Findus, part of Nomad Foods, has said the “naming and shaming” by Intermarché had “no place in a commercial relationship based on trust”.
On Friday, it emerged Unilever was to take Intermarché to court in a row over posters the grocer had displayed in stores.
The FMCG major is contesting a marketing campaign made by the supermarket for the former‘s Magnum and Carte d’Or ice-cream brands where Intermarché had insinuated ‘shrinkflation’ had occurred, according to L’Informé.
What factors have been driving food inflation?
Pilarski: The surge in food inflation seen in Europe in recent quarters was mainly propelled by escalating energy prices affecting every aspect of the agricultural food chain – from farmers and processing facilities to transportation.
Also, a critical factor contributing to food inflation was the diminishing supply of crucial agricultural inputs such as fertilisers and animal feed.
The World Bank Food Security Update Report in November 2023 attributed the surge in food prices to disruptions caused by the war in Ukraine. Given Ukraine’s prominent role as a producer and exporter of key foodstuffs, the disruptions had a ripple effect throughout the international food market which exacerbated inflation.
Food prices have been a major political issue in France
Pilarski: Throughout much of last year, Bruno Le Maire, France’s Finance Minister, criticised food manufacturers’ pricing amid persistent food inflation, which hit 13.7% in June.
An agreement was brokered in March for three months to set the “lowest possible price” on a range of products. The deal, dubbed the “anti-inflation quarter”, ended in June. That month, a fresh agreement was reached with manufacturers representing 80% of French food lowering the price of basic items, including pasta, sunflower oil and chicken.
In August, another deal was struck that saw prices frozen or cut on 5,000 products, including many food items. However, Le Maire still said some manufacturers were not doing enough to help the fight against inflation, pointing to Nestle, PepsiCo and Unilever as being among companies he says are not toeing the line.
President Macron also weighed in, insisting there were “large companies who are sky-rocketing the prices of some of their brands”. The industry pointed to pressure on costs.
The French government also obliged major suppliers and retailers to conclude their annual price negotiations by 15 January this year instead of 1 March in a bid to bring about a tangible drop in food prices.
Meanwhile, at the start of this year, France submitted plans for new rules to require the country’s retailers to alert shoppers to so-called shrinkflation.
Paris has asked the EU to clear a move that would oblige grocers to tell consumers if a product has been reduced in size but its price has stayed the same.
How have French shoppers reacted to higher food prices?
Pilarski: According to GlobalData’s 2023 Q4 Consumer Survey Results for France, 92% expressed concern about their personal finances, compared to the European average of 88%.
The survey reveals that 44% of grocery shoppers in France have downgraded from their favourite brands and are choosing to buy private labels or more economical alternatives to save money. Notably, only 9% of French consumers are transferring to more affordable grocery stores to economise on their overall grocery expenses.
Despite the recent easing of grocery inflation in France, consumers who are enduring ongoing economic challenges are continuing to tighten their spending. The intricate interplay of brand loyalty and shifting consumer purchasing preferences intensifies the complexity of the Carrefour-PepsiCo situation.
Could the delisting of PepsiCo products present an opportunity for competitors?
Pilarski: The banning of PepsiCo could allow smaller contenders to gain market share. GlobalData’s consumer survey for France reveals that 44% of grocery shoppers in France have moved away from their favourite brands and are choosing to store private labels or cheaper alternatives to save money. This comes as an opportunity for other brands to flourish because consumers are seeking alternatives in response to the void left by PepsiCo.
In addition, new products can gain sufficient market share if they are successfully advertised as direct substitutes and brands can leverage this gap in the market to showcase their commitment to consumer preferences, which could lead to gaining brand loyalty.
Zoe Mills: Amid this dispute, Carrefour’s own brands might be well placed to benefit. Shoppers are trading down to value retailers but also to own-brand products within the leading grocers. For Carrefour, the focus will be on encouraging shoppers to switch to its own lower-priced options. Nevertheless, this is not the first time there have been disputes in the industry and it won’t be the last. Temporary product bans have occurred before and PepsiCo’s products could well make their way back onto Carrefour’s shelves.
