Loblaws resolves snack price dispute, Frito-Lay returning to store

Sunday, April 10, 2022
author picture Leo Bernard
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Loblaws Resolves Snack Price Dispute With Frito-Lay

The snack industry has been in the news recently as Loblaws resolved a price dispute with Frito-Lay over the cost of a new‚ higher-priced brand. PepsiCo Inc. and Loblaw Companies Ltd. are attempting to resolve the dispute through negotiations‚ but a recent report by French daily La Presse suggests that the price dispute may not be resolved until after the companies reach an agreement.

Loblaws

As grocery prices continue to rise‚ the dispute between Loblaws and Frito-Lay is a reminder of the tensions within the Canadian food industry. As inflation increases‚ Loblaw's laser focus on maintaining low sticker prices will continue to lead to supply chain challenges. In addition‚ some experts argue that Loblaw is simply trying to keep sticker prices low and prevent suppliers from using inflation as an excuse to increase prices. While the recent pricing disagreement is likely to affect the long-term sales of Frito-Lay products‚ consumers should keep in mind that they're made in Canada from Canadian potatoes. Therefore‚ a long-term drop in sales could affect local producers. Nevertheless‚ brand loyalty is expected to help the Canadian company in the short-term. Regardless of the long-term consequences of the price war‚ it's important to note that Loblaw has a large share of grocery sales in Canada and Frito-Lay's pullout of supplies will negatively affect the company's near-term sales. The deal between Loblaws and Frito-Lay comes after months of tensions between the companies. In February‚ Loblaw stopped ordering and shipping Frito-Lay products to its stores‚ citing rising costs. Loblaw refused to raise prices‚ and the company began stocking their stores with house brands. While Loblaw's move to return Frito-Lay to its stores may sound small and insignificant‚ the dispute is an example of the deep tensions in the Canadian food industry. Supply chain challenges and inflationary pressures could further exacerbate the tensions between the two companies. The escalation in the price of PepsiCo's products in Canadian grocery stores has triggered a new round of price wars‚ with both companies attempting to regain market share. Loblaws is committed to finding a solution between the two companies‚ and says it is focused on minimising costs. FritoLay and Loblaw are in regular contact‚ but a deal has not yet been reached. The spat between the two companies has opened a window into the private negotiations between the companies‚ but it has remained in the public for months. The latest article from La Presse has added further pressure to negotiations. However‚ the two sides are not likely to reach a final agreement before the end of the year. This case could make a precedent for future price disputes. And while the battle has been public‚ it's unlikely to end anytime soon. Currently‚ the Justice Department is investigating whether the company charged an excessive amount to Frito-Lay for slotting. While most retailers don't charge for shelf space‚ these fees are used to support promotions‚ advertising and other products. And while the Justice Department is investigating these practices‚ the official declined to comment on the matter. Although the company has not yet confirmed that it is currently investigating the issue‚ it has said it hopes to do so as soon as possible.

Frito-Lay

Canadian grocery giant Loblaw Cos. Ltd. is in the midst of a price war with Frito-Lay over a spike in snack prices. The snack maker has cut off shipments to Loblaw stores‚ causing many shoppers to turn to other brands. The two companies have been in negotiations over the price increase for several months‚ and a new price war is possible‚ but it would mean more competition for the Frito-Lay brand and the prices they charge. The conflict began in February‚ when Loblaw stopped selling Frito-Lay products in its stores. Loblaw refused to raise prices‚ and the company's supply chain was strained. The dispute exposed deep tensions in the Canadian food industry‚ which may worsen in the coming months as supply chains struggle and inflation continues to rise. While Loblaw and Frito-Lay have settled their price dispute‚ the situation could worsen. It was only in April when the companies agreed to settle their price differences. Loblaw and PepsiCo Inc. ceased shipments of several brands of snack foods. This decision resulted in a price war that left consumers scrambling for their favourite snacks. As a result‚ both brands have lost their market share and will have to compete for new customers. Loblaws has the largest share of grocery sales in Canada‚ and it is no surprise to see them return to stores. Despite the price war‚ Loblaw has been able to hold its ground‚ because it is only the supplier of the snacks. The same would not happen if the dispute had involved the price of milk. If Loblaws stopped shipping the milk‚ consumers would not be so patient. Moreover‚ the oligopoly in Canada makes Loblaw a formidable competitor. As a result‚ Loblaw controls about a third of the market in Canada. The price conflict has led to a Justice Department investigation into this price dispute. Some retailers charge companies a significant slotting fee. However‚ most retailers don't sell shelf space. Instead‚ they use the money for advertising‚ promotions‚ and product support. Loblaws‚ however‚ agrees that Frito-Lay occupies the most space on their shelves. The companies say the money they charge them is justified by the sales they generate.

PepsiCo

In recent weeks‚ the Loblaws-Frito-Lay spat has played out in the public. In February‚ food prices in the country rose 7.4 per cent‚ driven by higher fuel and commodity costs. The increase was the highest in more than 13 years. Loblaw says it expects to increase profits in the second half of the year‚ with earnings per share rising by low double digits. Frito-Lay North America has increased its operating profit year-over-year by 10 per cent in the fourth quarter of 2018. The dispute is part of a larger battle between Loblaws and suppliers over consumer preferences. The price increases have been the source of a bitter standoff between the two companies. Initially‚ Frito-Lay stopped shipments to Loblaw‚ but later re-established the shipments. The dispute has raised tensions within the food industry‚ as grocers grapple with the highest inflation since the Great Depression. As inflationary pressures rise and supply chain problems persist‚ both sides are attempting to reduce costs. The Justice Department is investigating the company's slotting fee‚ which amounts to nearly $1.3 million. While most retailers do not sell shelf space‚ such fees are used to support advertising and promotions‚ and a number of other product support programs. Most companies say that Frito-Lay occupies the most shelf space and that the additional revenue generated by its presence in the store justifies the cost. With the emergence of new regulations that regulate food prices‚ the issue between the two companies may become a bit complicated. Loblaw is one of the largest members of Canada's grocery oligopoly and has nearly a third of the market. But the monopoly does not stop there. Loblaw has the power to influence prices and supply chains by imposing minimum prices on most products.