French supermarket giant Carrefour has stopped selling PepsiCo products in its stores across the country and in several other European markets, citing disputes over price hikes imposed by the multinational food and beverage corporation.
Carrefour Rejects PepsiCo’s Price Hikes
Carrefour, Europe’s largest retailer by revenues, said that starting January 4th, 2024, it would halt sales of all PepsiCo beverages and snacks in its French stores due to “unjustified” price increases that it refused to accept. This includes popular soft drink brands like Pepsi, 7Up, Lipton Ice Tea, Gatorade, as well as snack brands such as Lay’s, Doritos, Cheetos and more.
The price hike demands from PepsiCo came amid already soaring inflation that has squeezed household budgets across France and Europe. Food prices in particular have risen sharply, prompting French consumers to cut back spending.
A spokesperson for Carrefour stated:
“It’s an unprecedented move as we’re talking about leading everyday consumer goods. But we consider those demands unjustified given the current inflationary environment. Our priority is to defend the purchasing power of our customers.”
The removal impacts over 100 PepsiCo products that had been stocked on shelves in Carrefour’s over 9,000 stores across France. Similar actions were taken in Carrefour locations in Spain, Italy and Belgium as well, indicating this was a coordinated effort to push back against the price hikes.
This represents a major fallout between one of the world’s largest food retailers and biggest snack food purveyors. Carrefour has significant leverage as PepsiCo’s second largest European customer after Walmart-owned Asda.
Rising Production Costs Drive Price Hike Demands
For its part, PepsiCo stated that its proposed price increases reflected mounting costs across transportation, ingredients, labor and operations. A spokesperson explained:
“Costs go up on our products for lots of reasons – the ingredients, manufacturing, transporting all costs more. We work hard to keep costs down, but we do need to occasionally pass some of the cost increases onto our retail customers.”
The pricing pressure has been building for some time. Over the last year, PepsiCo attempted smaller price hikes that Carrefour said it mostly absorbed. But the latest proposed double-digit percentage increases to invoice prices proved unacceptable.
Industry experts note producer price tags have climbed over 20% on average in markets like the United Kingdom and France since 2021. That has narrowed margins for retailers like Carrefour struggling to keep prices reasonable while also protecting profitability.
Carrefour Faces Backlash Over High Prices
Carrefour itself has faced harsh criticism from consumers and politicians in France over runaway grocery bills. Though the retailer has blamed suppliers for the bulk of price inflation, some customer surveys revealed Carrefour to have among the highest prices compared to rivals like Leclerc.
In November 2023, French Finance Minister Bruno Le Maire took aim specifically at Carrefour and other big chains for high food prices, stating they were “not acceptable”. That coincided with a call from consumer groups and politicians for a nationwide boycott of Carrefour stores.
While Carrefour defended its pricing strategy by highlighting promotions and private label savings for shoppers, the pressure has clearly influenced its hardline stance with PepsiCo.
Pulling prominent brands like Pepsi and Lay’s potato chips certainly draws attention to its public position of shielding customers from excessive inflation. But it also represents a risky gambit if the move backfires among shoppers loyal to those household product names.
Some analysts have already speculated Carrefour could cave first should customers begin complaining loudly about the missing PepsiCo items. The retailer can likely absorb some short-term profit loss better than losing brand equity with frustrated buyers.
Little Impact Expected for PepsiCo Volumes Near Term
Meanwhile, the ultimate impact may prove minimal for PepsiCo, at least over the next few months. The company can shift product to independent grocery channels not affected by Carrefour’s boycott.
|2023 France Volumes
|Carrefour Estimated Percentage
As the table above summarizes using analyst projections, at most Carrefour represents 30% of national sales volume across PepsiCo’s various product lines. The company also has contracts locked in with other leading French retailers like Casino and Intermarche.
However, if more major customers join Carrefour’s lead by similarly dropping or reducing PepsiCo goods, that would substantially slow growth and profit trajectories expected for 2024. This makes resolution of the pricing dispute paramount for PepsiCo’s leadership team in the coming months.
PepsiCo shares traded slightly down in afternoon market activity as investors reacted to the Carrefour headlines from Europe. Some suggested the pullout could provide rival Coca-Cola an opportunity to advance its market share lead by as much as 2 points across impacted categories and regions.
Ongoing Negotiations to End Boycott
Behind closed doors, both sides suggest active discussions are taking place to reach a pricing agreement and return PepsiCo products to Carrefour shelves. But the retailer has stood firm so far that significant price cuts must come before restocking store inventory of the boycotted brands.
Given shifting consumer dynamics, most analysts believe PepsiCo faces more at stake and will eventually have to cave to save its second largest retail pipeline in Europe. If forced to choose between profits and volumes, the latter must clearly win out to protect market share.
That could establish a ripple effect that allows other major customers of PepsiCo to follow Carrefour’s lead in demanding price easings, especially those also operating on thin margins. The next several weeks of negotiations and outcome of this high stakes standoff will prove crucial to how 2024 plays out across various consumer goods sectors.
The PepsiCo product boycott illustrates intensifying margin battles as both producers and retailers combat inflation simultaneously. It also highlights how positioning around social issues like corporate greed and consumer advocacy has increasingly become part of competing for modern buyers.
As Carrefour and PepsiCo push and pull over fair profit allocation in the grocery supply chain, shoppers stand to benefit from any spill over savings, at least temporarily. But lasting resolution will ultimately require fundamental economic forces of inflation to stabilize instead of short-term negotiating tactics alone.
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