Frito-Lay, Loblaw price dispute symbolic of larger industry issues

Frito-Lay, a division of PepsiCo Canada, has opted to stop selling to Loblaw after the grocery company refused requests by the snack maker to increase prices.

With low profit margins, labour shortages, packaging issues and supply chain woes, inflation has been violently disruptive to food manufacturers. Not the first time this has happened, but this particular stop-sell is unprecedented, and this maneuvre by Frito-Lay tells us food manufacturers in Canada have had enough of grocers changing the rules to their advantage.

The cost of doing business?

In recent years, grocers have arbitrarily charged more fees and—in some cases—reduced suggested prices without consent, which is a nightmare for manufacturers who need market discipline to protect brand equity. As a food producer, the last thing you want is a price war involving your own products. Supply chain order is critical to our entire food ethos; jobs and economic growth are at stake. Frito-Lay products are made in Canada, using Canadian potatoes grown by Canadian farmers.

The Frito-Lay, Loblaw rift was long overdue, and it was only a matter of time before it became public. And make no mistake, many other manufacturers and other grocers are involved in a similar tug-of-war match. Reporters have this story because someone wanted the public to know.

Shelves will likely remain stocked, or product shortages will be temporary. Grocers will find a way to fill shelves with other brands including their own. With current market conditions, and the fact that the food inflation rate is north of 6% now, consumers will be trading down and seeking private label. Grocers know it, so the time may be right for them. 

Taking control

Since the pandemic, many food manufacturers including PepsiCo Canada have considered selling food directly to consumers, allowing them to control market conditions and gain more authority over their brands. The pandemic has made the supply chain more democratic and inherently more virtual. PepsiCo Canada is incredibly efficient and could extend its fleet of trucks to connect its plants with consumers. This is 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 while attempting to pivot.

For years, during supply chain games, food manufacturers always had to blink first. PepsiCo’s move signals that the sector is tired of, and desperate to stop, “supply chain bullying.” And therefore, the industry desperately needs a code of practice, so companies can go to the arbitrator to avoid more market disruptions. This situation affecting the chips section of the grocery store is concrete evidence of how supply chain wars can impact consumers directly. We need supply chain peace. We need an authoritative code.

Some may feel they can live without Frito-Lay products. Fair enough, but remember: with fewer manufacturing options for grocers come higher retail prices, eventually.