The potato chip war is just the tip of the iceberg

We recently learned that Frito-Lay, a brand owned by giant PepsiCo Canada, stopped selling to Loblaws after the retailer refused Frito-Lay’s requests to raise prices.

It’s not the first time this has happened. But the scale of this stop sale is unprecedented, and PepsiCo’s maneuver tells us that food manufacturers in Canada are tired of grocers changing the rules to their advantage.

Unlike other industries, suppliers in the food industry will pay customers to do business. It’s such a strange environment for the neophyte. Manufacturers pay a registration fee for the privilege of selling to grocers.

It has always been so. But in recent years, grocers have arbitrarily charged more fees and, in some cases, reduced suggested prices without consent.

As a food producer, the last thing you want is a price war involving your products. If things were free, we wouldn’t have much of an economy or jobs to support Canadians.

Frito-Lay products are made in Canada from potatoes grown by Canadian farmers.

The split between PepsiCo and Loblaws is long overdue. And make no mistake: many other manufacturers and grocers are embroiled in similar disputes. This happens in dairy and bakery, so many food categories are affected by this.

Canadians may be intrigued by the news. Why would Loblaws be blamed for keeping prices lower for consumers?

The answer is not simple. For the grocers, the game is easy since they have all the power. Nearly 90% of all the food Canadians buy is sold by just five retailers. And if Loblaws gets a lower price, that doesn’t mean Canadians benefit all the time. Sometimes, but shareholders are often the big winners.

But don’t expect empty shelves in the fries aisle or other sections of the grocery store to become available anytime soon. And if they show up, they won’t stay long. Grocers will find ways to stock shelves with other brands, including their house brands. Given current market conditions and the fact that the food inflation rate is over 6%, consumers will lower their prices and seek out more house brands.

Since the start of the COVID-19 pandemic nearly two years ago, many food manufacturers, including PepsiCo Canada, have thought about selling food directly to consumers. They could control market conditions and gain more authority over their brands.

The pandemic has made the supply chain more democratic and inherently more virtual.

In terms of in-store merchandising, PepsiCo is one of the best companies out there. He masters the central mile to support in-store merchandising for grocers. The company is incredibly efficient: it could expand its fleet of trucks to connect manufacturing plants to consumers. It’s a definite possibility, but the transition from business-to-business to business-to-consumer is never easy. Many companies have failed miserably during the pandemic trying to pivot.

For years, when it comes to supply chain games, food manufacturers have had to blink first. PepsiCo’s decision signals that the industry has had enough and is desperate to end bullying in the supply chain.

The industry desperately needs a code of practice, so companies can go to an arbitrator to avoid further market disruption. This chip dispute is concrete evidence of how supply chain wars can directly impact consumers. Some people may think they can just live without PepsiCo products, or other products for that matter. That’s fair enough, but remember: fewer manufacturing options for grocers will eventually mean higher retail prices.

CS

Sylvain Charlebois is Senior Director of the Agrifood Analysis Laboratory and Professor of Food Distribution and Policy at Dalhousie University. Troy Media

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