Retailers are using newfound clout to put the squeeze on suppliers
With inventories elevated in many categories and the economy slowing amid inflationary pressures, larger retailers are using reclaimed leverage to cancel orders, fight price increases and seek out concessions from suppliers.
Vendors had enjoyed an extended period of pricing power amid inventory shortages caused by supply chain disruption.
As reported by Yahoo Finance Canada, Loblaw and Metro are among the grocers pushing back against continued price increases.
“We have seen unprecedented cost increases from our suppliers this year and we continue to receive new cost increases,” stated Loblaw’s CFO Richard Dufresne recently on his company’s call. “Part of our job is to evaluate these and push back where they do not make sense. We have done that vigorously over the last two years and will continue to do so going forward. Our objective is to make sure that our [prices] on the shelf do not rise faster than supplier costs.”
Metro’s CEO Eric La Flèche said on the grocer’s recent quarterly call, “If the vendors want to keep their volumes, the cost increases will have to moderate.”
According to the Journal article, the squeeze is particularly being felt by suppliers of non-food general merchandise items that don’t have to be regularly restocked. With less pricing leverage, suppliers have to push back on factories or seek internal cost savings to offset rising raw material, labor and other costs.
“We need our operating profit and margin, they need their operating profit and margin as well,” Mike Hsu, CEO of Kimberly-Clark Corp., told the Journal, referring to retailers. “They don’t like all of the pricing that’s gone in. These discussions never get easier. They know that we’ve got to recover those margins or we’re not going to be able to invest in the brands in the right way.”
A McKinsey & Company survey of CPG vendors also found more than half reporting retailers have tightened their on-time and in-full requirements by narrowing delivery windows and increasing fines for noncompliance in a return to pre-pandemic performance expectations.
- Walmart Is Flexing Its Muscle Again – The Wall Street Journal
- Loblaw, Metro pressuring food suppliers as profit soars – Yahoo Finance Canada
- Loblaw Delivers Adjusted EBITDA growth of 10.3% in the Third Quarter – Loblaw
- Great service — but who’s paying? – McKinsey & Company
- Inflation? Recession? Starting Black Friday, holiday shoppers are planning to spend – CNBC
DISCUSSION QUESTIONS: Do you see indications that retailers regained leverage against their supplier base amid excess inventories and inflationary pressures? What advice would you have for retailers about capitalizing on but not exploiting any newfound negotiation advantage?