The price war has started again, and Carrefour has stopped selling Pepsi products due to price increases

Source: PepsiCo China official website

PepsiCo, which has frequently raised prices, has recently been counterattacked by channel providers.

According to the Financial Associated Press, on January 4, local time, a spokesman for Carrefour's French supermarket said that Pepsi product shelves in Carrefour stores in France, Italy, Spain and Belgium will post slogans: indicating that due to the unacceptable increase in prices, supermarkets will no longer stock related brand products.

The move means that customers in these four European countries will no longer be able to buy PepsiCo products in Carrefour supermarkets, announcing that retail giant Carrefour and global food giant PepsiCo have entered a hot business war.

"Blocking" Pepsi in four European countries

According to reports, starting from Thursday (4th), Pepsi product shelves in Carrefour stores in France, Italy, Spain and Belgium have posted signs on the shelves, saying that "due to the unacceptable price increase", the store will no longer stock these brand products. This involves eight PepsiCo brands, including Lay's, Doritos, Benenuts, Alvalle, Lipton, Pepsi, 7Up and Quaker products.

In addition, Carrefour will also remove PepsiCo products from stores in Italy, Spain and Belgium. According to Carrefour's 2022 annual report, there are more than 9,000 stores in the four affected countries, accounting for about two-thirds of Carrefour's 14,348 stores worldwide.

The move marks an escalation of Carrefour's attempt to pressure some of the world's largest consumer goods companies to cut prices, which have also raised prices sharply over the past two years in the face of soaring energy, commodity and labor prices.

"We have been in discussions with Carrefour for several months, and we will continue to negotiate in good faith to ensure that our products are available to everyone," PepsiCo said in a statement. "On the 4th, in the Carrefour supermarket in the fashionable 16th arrondissement of Paris, customers could not find some Pepsi products such as "Cheetos" and 7-Up, but other products, including Pepsi, were still on the shelves, next to the above notice.

It is worth mentioning that in September last year, Carrefour launched a "shrinking inflation" campaign, plastering warnings next to a number of products, from Lindt chocolate to Lipton iced tea, to inform customers that these products have shrunk in size, but the price is more expensive, although the price of raw materials has fallen.

Carrefour CEO Alexander Bombal has repeatedly stressed that consumer goods companies are reluctant to cooperate, and that they are still unwilling to lower the prices of thousands of major products despite the price of raw materials coming down.

But PepsiCo CEO Ramon J. L. LaGuarda said on an earnings call in October that PepsiCo expects "inflation to be higher" and that product prices will remain high this year.

Preliminary data released on January 4 showed that French inflation rose to 4.1% in December from 3.9% in November. According to France's national statistics office, food inflation fell from 7.7% to 7.1%.

Over the past two years, Nestle, Unilever, Coca-Cola and Procter & Gamble have all raised prices sharply, passing on the cost increase to consumers.

This has sparked intense negotiations between retailers and consumer goods giants, with some brands temporarily removed from shelves due to lack of agreement.

After several failed negotiations in 2022, Kraft Heinz stopped supplying some of its products, including ketchup and baked beans, to Tesco, the UK's largest food retailer. At the time, Tesco said Kraft Heinz's price increase was "unreasonable". Later, when the products were back on the shelves, Heinz's most popular series of products was adjusted back to their original prices.

The sharp rise in the price of products from various brands has prompted consumers to buy retailers' private label products. Carrefour CEO Bampal said in February last year that the company would "substantially increase" its share of private label products over the next three years, bringing it to 40% of the products on sale.

Some analysts said that this practice of "chasing inflation with price increases" has obviously put pressure on supermarket turnover and forced retailers to demand price reductions in a new round of price negotiations. In addition to Carrefour, grocery retailers in several countries, such as Germany and Belgium, have also stopped placing additional orders with some consumer goods companies.

Carrefour is clearly one of the most negotiating companies in the retail industry and one of the most willing to challenge the price strategies of consumer goods companies. Last year, it launched a campaign to shrink inflation, plastering warnings on small-sized items from brands such as PepsiCo to alert consumers.

However, from a business point of view, Carrefour's move is also quite risky. James Walton, chief economist at the magazine's Distribution Institute, told the media that French supermarkets have always wanted to remove businesses they don't like from their purchase lists, but the problem is that supermarkets won't benefit if they don't have what customers want on the shelves, and neither will food brands.

PepsiCo has raised prices several times

Last year, many global consumer goods companies raised prices by double digits. They often attribute the price increases to rising raw material and labor costs.

At the same time, many of these companies report expanding profits as a result of selling fewer items at higher prices. In recent months, companies have reported that shoppers are under more pressure from inflation and high interest rates. Consumer goods sales companies, including PepsiCo, reported that they noticed customers tightening their wallets.

In fact, in recent years, PepsiCo has been launching price increase measures, and has repeatedly mentioned in its financial reports that the price increase has helped to increase performance. For example, in April 2022, the retail price of 500ml bottled Pepsi Original, Pepsi Sugar-free, Mirinda and other soda products were raised by 0.5 yuan.

In October, PepsiCo said demand was firm and kept rising, planned to raise prices slightly, and raised its annual profit outlook for the third time. Prior to that, PepsiCo had raised prices for seven consecutive quarters.

According to the financial report data, PepsiCo's performance in the third quarter of 2023 exceeded expectations, of which quarterly revenue was $23.453 billion, a year-on-year increase of 6.75%, slightly exceeding Wall Street's expectations of $23.38 billion, and the net profit attributable to the parent company reached $3.092 billion, a year-on-year increase of 14.4%, which drove earnings per share to $2.25, a year-on-year increase of 14.8%, higher than the market expectation of $2.16. Similarly, organic revenue, which is a better indicator of the quality of growth, was 8.8 percent higher than expected year-over-year.

However, looking back at PepsiCo's data from previous quarters, it should be pointed out that despite the overall performance in the third quarter, its organic revenue growth has shown an inflection point, and after seven consecutive quarters of double-digit growth, it has fallen back to a single-digit level in the third quarter.

On the surface, the decline in organic revenue growth is related to PepsiCo's repeated price increases since last year. According to the data, on the basis of the previous two rounds of price increases, PepsiCo raised the overall price by 11% again in the third quarter of last year, and at the same time, PepsiCo implemented a reduction strategy for some product lines. Although the strategy of price increase and volume reduction has strongly promoted the growth of overall performance, it has also triggered consumers to re-evaluate the value performance of their products, which in turn affects the level of organic income.

"I do think we're seeing consumers become more discerning right now," Hugh Johnston, then PepsiCo's chief financial officer, told analysts on an earnings call last October. ”

Retailers, on the other hand, are eager to see prices drop. Executives at Walmart, the largest retailer in the United States, welcomed the slowdown in grocery prices ahead of the holiday season, but were concerned about high food prices.

Walmart CEO Doug Macmillan told analysts in November, "Some of the deflation we're seeing is helping, but we'd like to see more, faster, especially in the dry grocery and consumer goods categories." ”

France's move comes as Europe is gaining broader momentum to tackle the ongoing cost-of-living crisis despite the economic downturn. In Italy, the government has tried to pressure retailers and manufacturers to lower food prices. The Greek government has begun requiring supermarkets to report the prices charged for basic foodstuffs. Other large French supermarket chains have said they may follow suit.

In addition, in the Chinese market, PepsiCo Beverage also issued a price adjustment notice in December 2023, saying: "Based on the increase in raw material prices and the year-on-year increase in production costs, it has caused greater pressure on our products. In view of the pressure on operating costs, our company has adjusted the supply prices of some Pepsi beverage products (including brands: PepsiCo, Pepsi Sugar-Free, Mirinida, 7-Up, Gatorade, and Fruit Fun). However, the specific adjustment range and adjustment time were not clearly stated by the company.

Source: WeChat public account "Caizhi Headlines" is synthesized from: surging news, financial associated press, Red Star news, reference news, etc

Editor-in-charge: Bai Jing

Proofreading: Fenghua

Review: Gong Zimo

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