January 9, 2024
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Will Carrefour Benefit From Pulling PepsiCo Products Over High Prices?
Escalating a showdown by French retailers to name and shame brands that aren’t reducing prices as inflation eases, Carrefour last week moved to stop selling PepsiCo products in its stores in France, Belgium, Spain, and Italy.
According to multiple reports, signs next to the exiting brands — including Lay’s, Quaker Oats, Lipton, and PepsiCo’s namesake soda — began arriving in stores last week, reading, “We are no longer selling this brand due to unacceptable price increases.”
The move from Carrefour comes as Europeans continue to face high food inflation due in part to Russia’s invasion of Ukraine. In France, food prices rose 7.1% year-over-year in December. Price increases peaked in March 2023, surging 15.9%.
The French government has threatened to penalize or publicly shame suppliers that are reluctant to renegotiate lower prices with grocers amid declining prices of oil, transportation, food ingredients, and other raw materials.
“We have large companies that are jacking up the prices of some of their brands, and we want to get them around the table again and achieve price decreases as quickly as possible,” France’s President Emmanuel Macron recently said, according to The New York Times. “It is intolerable to see so many households having to make choices about essential goods.”
Part of that campaign includes shaming brands that engage in the practice of shrinkflation, or downsizing food packages while maintaining prices.
Suppliers have claimed that the elevated prices reflect the still high costs of ingredients and labor. However, many of those companies have also “reported expanding profits as they sell fewer items at higher prices.”
PepsiCo explained in a media statement that the company has “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.”
In 2023, pricing disputes led German grocer Edeka to halt sales of Mars and PepsiCo products, and Belgian supermarket Colruyt pulled Mondelez products. In 2022, U.K.-based Tesco temporarily pulled Kraft Heinz products due to high prices. In 2009, Costco made waves by briefly refusing to stock Coke products amid pricing negotiations, but such moves are rare in the U.S.
Randall Sargent, a partner in consultancy Oliver Wyman, told the Washington Post that yanking products is more common in Europe in part because private-label alternatives are more readily available. Sargent said that U.S. retailers were more likely to use unfavorable shelf placements or less promotion to incentivize brands to reduce prices.
In the U.S., food-at-home prices increased only 1.7% on a year-over-year basis in November, steadily decelerating after jumping 11.4% overall in 2022, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index. Surveys show, however, that many U.S. consumers are frustrated that food prices for many items remain well above pre-pandemic levels.
Grocers in the U.S. continue to express concerns about rising food prices despite moderated inflation. Walmart CEO Doug McMillon told analysts in November, “The pockets of disinflation we are seeing are helping, but we’d like to see more faster, especially in the dry grocery and consumables categories.”
BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Recent Discussions
Discussion Questions
Would pulling products be an effective tool for U.S. retailers to incentivize major food suppliers to reduce prices? Are there more optimal strategies U.S. retailers can tap as leverage against suppliers over pricing?
Poll
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I was taught as a buyer that I was an agent for the customer, and my job was always to understand their preferences and provide them with the product they wanted.
I can recall Costco having a similar blowup with Apple, and Coca-Cola in the past ultimately they patched things up and I believe that PepsiCo and Carrefour will as well. I think the best way to challenge a global brand’s pricing is to develop a competitive private brand offering that eats into their share on your shelf, but still offers the brand to your customers who want it. Losing share will inspire the brand to rethink their pricing strategy if in fact they are charging too high of a premium. Dropping them all together hurts the customer more than it hurts the brand. Give them a choice; don’t take away their choice.
There is little doubt that the brand vs. retailer battle in Europe will find it’s way to North America. In a previous life I have sold product into major retail chains, and from first-hand experience I can tell you that major retailers aren’t afraid to pull brands off the shelf. If a major retailer like Carrefour is willing to drop Pepsi, anything is possible. Frankly, I suspect Carrefour customers appreciate the stance the retailer is taking, and this may burnish their loyalty. Sell through rules in retail, and consumers are trading down. Creating private label options provide retailers with a very effective hedge against big bully brands and creates an opportunity to enhance margins. Private labels aren’t a panacea, but can be effective for retailers that have the wherewithal to do it.
It would depend a lot on which retailers: i.e. if WalMart did…. As for the policy itself, I have mixed feelings: I think there’s both a P/R and a practical value when there’s clear evidence of “gouging” – and it can’t be too hard when a public company announces that their margins rose by double digits (Gee, waddya’ know!) – but what of consumers who still want to buy the products, high price or no? It’s always best when the end users themselves make the decision (to stop buying).
Reminds me of Rubbermaid and Walmart. Rubbermaid never recovered from being dropped by Walmart.
One difference however- Walmart was the dominant player in the market. Companies like Leclerc have actively stated they will Not be pulling Pepsi from their shelves. This is more of a negotiation tactic to lower supplier costs. Once the hoopla dies down, I believe someone else on this thread mentioned, “the offending product will be back on the shelves”.
This isn’t about a benefit, it’s about a battle of wills between CPG firms and retailers. And this isn’t the first skirmish: Tesco has pulled plenty of products off its shelves after negotiations with suppliers did not result in lower prices, many other grocers have done similar things. I suspect we will see more of this as retailers try to bring prices back down in response to customer demand and pressure on their margins and volumes.
“Fine. We’ll bring the MSRP back down, but as long as you have private-label competition, you won’t be getting advertising, placement, or volume allowances, and won’t be prioritized for deliveries. You can’t have it both ways.”
Yes, that’s the problem. It is a back and forth negotiation. Ultimately, consumer demand will dictate the winner. Is a brand so popular that it will change where people shop? Or are consumers prepared to substitute it for something else!
There is zero benefit to pulling a brand like Pepsi, nor any of it’s most popular products in beverages, snack foods, and other categories.
To blame the brand for “jacking up prices” is shortsighted to say the very least. Inflation might have slowed a bit in its rate of escalation, but brands are still paying significantly more money for conponents, manufacturing, human resources, transportation, logistics, and more.
Let the market decide if prices are to high on Pepsi’s brands. It might well be that consumers are not willing to substitute their brand selections, and they can easily cross the street to buy them from a competitor, even at higher prices. -Db
Demand drives supply. The consumer will decide. Meanwhile, its a marketing message which claims the customer’s best interest. Once the messaging has faded, the shelves may find themselves mysteriously restocked with the offending product.
This is all PR. Why Pepsi brands? Surely, they are not the only ones with large price increases. Pepsi brands have a high profile and make news all around the world.
This certainly would be more difficult for U.S. retailers. If a retailer pulls one of your favorite products, all you have to do is go across the street to buy it. And, the retailer should be concerned if you will ever come back.
Let the customer decide if the price is too high.
Other brands have reduced their prices as inflation decreases – in France as well as other places. Pepsi publicly refused there.
Shaming brands at the government level may work in more socialist societies, but in capitalistic economies, the consumer should decide. I think a better approach would be to bring in more lower priced competitors and let the shopper ultimately influence shelf space with their purse strings.
Carrefour’s move aligns with consumers’ need for value and the French spirit of social activism. In the U.S., it’s rarer for the retailer-Big Food relationship to fray to the point of halting sales.
While pulling products is an option, U.S. retailers will likely negotiate with other diplomatic options. Retailers could give more shelf space and promotional prominence to affordable brands, including their own private labels.
As the retail sector restructures to support integration, efficiency and retail media-driven growth, price wars threaten retailer-brand collaboration.
We’ve seen this before in the US, going back as far as the ’80s when King Sooper pulled P&G products from their shelves because they were participating (or not helping stop) coupon fraud (gang-cutting). It’s an effective strategy and even more so where different chains are not so plentiful in a small geography, as is the case in much of Europe. You go to Carrefour to buy everything. If you can’t find Pepsico products, you’ll buy something else rather than go to another store. Good marketing for Carrefour, bad look for Pepsico.
It’s just possible that some consumers are willing and able to pay what it takes to buy PepsiCo products in Carrefour stores, and the retailer is unilaterally taking away that option. There are ways to exercise leverage over branded CPG companies — especially in terms of shelf space and planned promotional activity — without punishing the shopper.
Carrefour just sent their customers a giant, huge, enormous love letter. “We are on YOUR side!” In these inflationary times retailers will sometimes have to take drastic measures. And this one is pretty drastic, but I think appropriate. The message is abundantly clear to both suppliers and customers.
Losing a sales and distribution channel will always serve to incentivize brands. The implication here is troubling–that Pepsi and Frito Lay are not “doing enough” to be price competitive, and all that needs to happen is a little nudge from a major supplier like Carrefour to “get with the program”.
I doubt it is this simple. Why not just let the market decide? Are Pepsi sales down? Have people stopped eating Fritos? Does Carrefour want to put a store brand up on their aisles where Pepsi used to be? If Pepsi is materially more expensive than, say, Coca Cola, wouldn’t Pepsi be naturally encouraged to do something about it?
Finally, I HAVE to comment on President Macron’s comment about families making hard decisions about essential goods. I mean, seriously? Pepsi products are essential to the well being of the people of France? If they cannot afford Fritos the country of France will go into therapy? The French President has more important things to comment and spend his time on. At least in my view 🙂 .
This is Carrefour exercising the “nuclear” option. I completely understand their motives and support the argument, but I’m not sure eliminating the choice for their customers is the best way to approach it. A better option, I believe, would be to give the customers a real choice by dropping prices and promoting their private-label items that directly compete with Pepsi and Frito-Lay. As brand dominance in CPG has eroded over the years, this would allow Carrefour to continue to support their customers, grow their owned brands (always a good thing), drive loyalty, and still send a message to Pepsi that I guarantee they will respond if they start losing market share.
Taking supplier negotiations public may give retailers some PR value but even if they have a strong private label line, it’s not a good long-term approach.
The U.S. is a very different market to Europe. And U.S. customers are very different to European customers in their reactions to moves like this. Especially when it’s a U.S. brand. Most retailers don’t have the leverage of a Walmart or Costco, so it would hurt them and their customer loyalty more than the brand. Promotional and merchandising tactics would be a much better play. But if sales volume drops that can also impact wholesale pricing arrangements, so it’s a delicate balance.
Pulling favorite brands from the shelf would anger customers who are brand lovers and would simply buy the product elsewhere. A more sensible approach would be for grocers to promote their competing store brands and negotiate aggressively with the name brands.
This may work in these countries with less competition but it would not work very well in the US. Especially in some regions.
Also was there really a pricing issue with ALL brands (even the Quaker Oats?)? Or was it just the Pepsi and Lay’s? Seems rather rash to pull ALL of the brands. I could see pulling only Pepsi or whatever specific category had the pricing issue, but not the entire suite of items.
Also I think they’d be better off keeping the items there, even at a high price, than not having the items at all. Promote competing brands, reduce shelf space for the overpriced in their mind Pepsi brands, and let the customer who wants the product pay the price for it. I think there will be more ill will from not having items at all, than having the items at a high price.
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I was taught as a buyer that I was an agent for the customer, and my job was always to understand their preferences and provide them with the product they wanted.
I can recall Costco having a similar blowup with Apple, and Coca-Cola in the past ultimately they patched things up and I believe that PepsiCo and Carrefour will as well. I think the best way to challenge a global brand’s pricing is to develop a competitive private brand offering that eats into their share on your shelf, but still offers the brand to your customers who want it. Losing share will inspire the brand to rethink their pricing strategy if in fact they are charging too high of a premium. Dropping them all together hurts the customer more than it hurts the brand. Give them a choice; don’t take away their choice.
There is little doubt that the brand vs. retailer battle in Europe will find it’s way to North America. In a previous life I have sold product into major retail chains, and from first-hand experience I can tell you that major retailers aren’t afraid to pull brands off the shelf. If a major retailer like Carrefour is willing to drop Pepsi, anything is possible. Frankly, I suspect Carrefour customers appreciate the stance the retailer is taking, and this may burnish their loyalty. Sell through rules in retail, and consumers are trading down. Creating private label options provide retailers with a very effective hedge against big bully brands and creates an opportunity to enhance margins. Private labels aren’t a panacea, but can be effective for retailers that have the wherewithal to do it.
It would depend a lot on which retailers: i.e. if WalMart did…. As for the policy itself, I have mixed feelings: I think there’s both a P/R and a practical value when there’s clear evidence of “gouging” – and it can’t be too hard when a public company announces that their margins rose by double digits (Gee, waddya’ know!) – but what of consumers who still want to buy the products, high price or no? It’s always best when the end users themselves make the decision (to stop buying).
Reminds me of Rubbermaid and Walmart. Rubbermaid never recovered from being dropped by Walmart.
One difference however- Walmart was the dominant player in the market. Companies like Leclerc have actively stated they will Not be pulling Pepsi from their shelves. This is more of a negotiation tactic to lower supplier costs. Once the hoopla dies down, I believe someone else on this thread mentioned, “the offending product will be back on the shelves”.
This isn’t about a benefit, it’s about a battle of wills between CPG firms and retailers. And this isn’t the first skirmish: Tesco has pulled plenty of products off its shelves after negotiations with suppliers did not result in lower prices, many other grocers have done similar things. I suspect we will see more of this as retailers try to bring prices back down in response to customer demand and pressure on their margins and volumes.
“Fine. We’ll bring the MSRP back down, but as long as you have private-label competition, you won’t be getting advertising, placement, or volume allowances, and won’t be prioritized for deliveries. You can’t have it both ways.”
Yes, that’s the problem. It is a back and forth negotiation. Ultimately, consumer demand will dictate the winner. Is a brand so popular that it will change where people shop? Or are consumers prepared to substitute it for something else!
There is zero benefit to pulling a brand like Pepsi, nor any of it’s most popular products in beverages, snack foods, and other categories.
To blame the brand for “jacking up prices” is shortsighted to say the very least. Inflation might have slowed a bit in its rate of escalation, but brands are still paying significantly more money for conponents, manufacturing, human resources, transportation, logistics, and more.
Let the market decide if prices are to high on Pepsi’s brands. It might well be that consumers are not willing to substitute their brand selections, and they can easily cross the street to buy them from a competitor, even at higher prices. -Db
Demand drives supply. The consumer will decide. Meanwhile, its a marketing message which claims the customer’s best interest. Once the messaging has faded, the shelves may find themselves mysteriously restocked with the offending product.
This is all PR. Why Pepsi brands? Surely, they are not the only ones with large price increases. Pepsi brands have a high profile and make news all around the world.
This certainly would be more difficult for U.S. retailers. If a retailer pulls one of your favorite products, all you have to do is go across the street to buy it. And, the retailer should be concerned if you will ever come back.
Let the customer decide if the price is too high.
Other brands have reduced their prices as inflation decreases – in France as well as other places. Pepsi publicly refused there.
Shaming brands at the government level may work in more socialist societies, but in capitalistic economies, the consumer should decide. I think a better approach would be to bring in more lower priced competitors and let the shopper ultimately influence shelf space with their purse strings.
Carrefour’s move aligns with consumers’ need for value and the French spirit of social activism. In the U.S., it’s rarer for the retailer-Big Food relationship to fray to the point of halting sales.
While pulling products is an option, U.S. retailers will likely negotiate with other diplomatic options. Retailers could give more shelf space and promotional prominence to affordable brands, including their own private labels.
As the retail sector restructures to support integration, efficiency and retail media-driven growth, price wars threaten retailer-brand collaboration.
We’ve seen this before in the US, going back as far as the ’80s when King Sooper pulled P&G products from their shelves because they were participating (or not helping stop) coupon fraud (gang-cutting). It’s an effective strategy and even more so where different chains are not so plentiful in a small geography, as is the case in much of Europe. You go to Carrefour to buy everything. If you can’t find Pepsico products, you’ll buy something else rather than go to another store. Good marketing for Carrefour, bad look for Pepsico.
It’s just possible that some consumers are willing and able to pay what it takes to buy PepsiCo products in Carrefour stores, and the retailer is unilaterally taking away that option. There are ways to exercise leverage over branded CPG companies — especially in terms of shelf space and planned promotional activity — without punishing the shopper.
Carrefour just sent their customers a giant, huge, enormous love letter. “We are on YOUR side!” In these inflationary times retailers will sometimes have to take drastic measures. And this one is pretty drastic, but I think appropriate. The message is abundantly clear to both suppliers and customers.
Losing a sales and distribution channel will always serve to incentivize brands. The implication here is troubling–that Pepsi and Frito Lay are not “doing enough” to be price competitive, and all that needs to happen is a little nudge from a major supplier like Carrefour to “get with the program”.
I doubt it is this simple. Why not just let the market decide? Are Pepsi sales down? Have people stopped eating Fritos? Does Carrefour want to put a store brand up on their aisles where Pepsi used to be? If Pepsi is materially more expensive than, say, Coca Cola, wouldn’t Pepsi be naturally encouraged to do something about it?
Finally, I HAVE to comment on President Macron’s comment about families making hard decisions about essential goods. I mean, seriously? Pepsi products are essential to the well being of the people of France? If they cannot afford Fritos the country of France will go into therapy? The French President has more important things to comment and spend his time on. At least in my view 🙂 .
This is Carrefour exercising the “nuclear” option. I completely understand their motives and support the argument, but I’m not sure eliminating the choice for their customers is the best way to approach it. A better option, I believe, would be to give the customers a real choice by dropping prices and promoting their private-label items that directly compete with Pepsi and Frito-Lay. As brand dominance in CPG has eroded over the years, this would allow Carrefour to continue to support their customers, grow their owned brands (always a good thing), drive loyalty, and still send a message to Pepsi that I guarantee they will respond if they start losing market share.
Taking supplier negotiations public may give retailers some PR value but even if they have a strong private label line, it’s not a good long-term approach.
The U.S. is a very different market to Europe. And U.S. customers are very different to European customers in their reactions to moves like this. Especially when it’s a U.S. brand. Most retailers don’t have the leverage of a Walmart or Costco, so it would hurt them and their customer loyalty more than the brand. Promotional and merchandising tactics would be a much better play. But if sales volume drops that can also impact wholesale pricing arrangements, so it’s a delicate balance.
Pulling favorite brands from the shelf would anger customers who are brand lovers and would simply buy the product elsewhere. A more sensible approach would be for grocers to promote their competing store brands and negotiate aggressively with the name brands.
This may work in these countries with less competition but it would not work very well in the US. Especially in some regions.
Also was there really a pricing issue with ALL brands (even the Quaker Oats?)? Or was it just the Pepsi and Lay’s? Seems rather rash to pull ALL of the brands. I could see pulling only Pepsi or whatever specific category had the pricing issue, but not the entire suite of items.
Also I think they’d be better off keeping the items there, even at a high price, than not having the items at all. Promote competing brands, reduce shelf space for the overpriced in their mind Pepsi brands, and let the customer who wants the product pay the price for it. I think there will be more ill will from not having items at all, than having the items at a high price.