One of Canada’s biggest food manufacturers has halted shipments to the country’s largest grocer in an extreme example of how inflation is impacting the food industry and driving a wedge between some retailers and suppliers.
At issue is a dispute over pricing between Frito-Lay Canada and Loblaw Companies Ltd. as the maker of brands like Cheetos, Doritos, Lays, Ruffles and Sunchips tries to recoup higher costs.
The situation has left the chip and snack food aisle of many Loblaw stores less full than usual or stocked with the retailer’s house brands, such as President’s Choice or No Name.
Frito-Lay spokeswoman Sheri Morgan confirmed there is a “temporary disruption” with one customer.
“Our business has faced unprecedented pressures from rising costs of items including ingredients, packaging and transportation,” she said in an email.
“To help offset these pressures on our Canadian operations … we have made adjustments to our prices that are consistent across the marketplace.”
Loblaw spokeswoman Catherine Thomas said the grocer is “laser focused” on minimizing retail price increases.
“When suppliers request higher costs, we do a detailed review to ensure they are appropriate,” she said in an email. “This can lead to difficult conversations and, in extreme cases, suppliers don’t ship us products.”
The rift between Frito-Lay and Loblaw exposes deepening tensions in Canada’s food industry that many experts say could worsen as supply chain challenges and inflation continue.
Some argue that grocery retailers are simply trying to keep sticker prices low for consumers and stop suppliers from using inflation to justify unreasonable price hikes.
Others suggest grocers are using their market strength to bully suppliers and pad their bottom lines.
“It’s challenging that it has devolved into such a confrontational relationship,” said Michael Graydon, CEO of Food, Health & Consumer Products of Canada, which represents Frito-Lay.
“The level of frustration is growing.”
The increase in wholesale prices some suppliers are seeking from retailers will help mitigate ongoing inflation — but won’t completely offset higher costs, he said.
The final price consumers pay in stores is set by grocery retailers, Graydon said.
“This is a cost increase from the manufacturer to the retailer,” he said. “The manufacturer does not set retail pricing. It is set exclusively by the retailer.”
Meanwhile, some supermarkets have fined food manufacturers when they have been unable to supply stores with as much product as usual.
Yet Graydon said inventory issues during the pandemic are due to factors beyond the control of manufacturers, such as having to shut down a plant for several days due to a lack of packaging from shipping delays.
“There’s millions of dollars in fines taking place,” he said. “It is just one constant battle in regards to pricing, fines and allocations.”
This report by The Canadian Press was first published Feb. 22, 2022.
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Brett Bundale, The Canadian Press