Carrefour drops Pepsico for now but will it make a difference?

By Richa Naidu

LONDON (Reuters) -Carrefour says it has ditched Pepsico (NASDAQ:) products in four European countries for taking price hikes too far, but the negotiation tactic may have little impact given the size of some global brands, industry experts said.

The strategy of removing products from shelves is one retailers have employed for years in the tussle over prices with suppliers, but the cost-of-living crisis has prompted more disputes, such as a reported spat between German retailer Edeka and U.S. Procter & Gamble (NYSE:) last year.

Supermarkets, who are operating on razor-thin margins, say they are trying to keep their prices in step with rivals while preventing consumers being faced with big price jumps for popular brands. Meanwhile, major food and consumer brands have hiked prices over the past few years to cover their higher costs, sometimes also bolstering their profit margins.

Carrefour (EPA:)’s move comes just over a week before French grocers fix prices for the whole year. The brinkmanship has reignited the debate about whether grocers can really afford to drop popular products without losing out to rivals.

“In the short term, it makes a small dent in the profitability of both retailer (lost sales) and the brand, but in the end, this is mainly noise,” Bernstein analyst Bruno Monteyne said.

“Retailers believe that it enhances their image and brand with consumers, but I doubt there is any evidence to support that.”

In the past, retailers have dropped brands only to bring them back weeks or months later and accept price hikes.

Procter & Gamble, the Tide detergent maker, told Reuters in November German shoppers could still find its brands on the shelves of Edeka.

British supermarket group Tesco (OTC:) raised prices on 11 Colgate products last March by an average of 28%, according to industry magazine The Grocer, to avoid a repeat of its 2022 price dispute with the toothpaste maker. That year, Tesco also fought with Kraft Heinz (NASDAQ:) for a few weeks. Tesco did not immediately respond to a request for comment.

“Most of the time this (delisting products) is temporary and does not make a meaningful impact on group sales of geographically well-diversified companies,” said Tineke Frikkee, a portfolio manager at Waverton Investment Management, which invests in Unilever (LON:) and Reckitt Benckiser (LON:).

“The only retailer where it may be meaningful would be if the dispute is with Walmart (NYSE:), as the largest U.S. grocer this would impact sales. For Pepsi, not selling at Carrefour in France is unlikely to dent group profits, and for Heinz we would not have spotted their dispute with Tesco in their financials.”

Campbell Soup (NYSE:) in 2017 warned it was having trouble agreeing a promotional strategy with Walmart and its canned soup sales subsequently fell 9% in the quarter ended Oct. 2017.

FRENCH CONTRIBUTION TO GLOBAL BRANDS

France is a crucial market for some consumer goods companies, having long outstripped Germany, Italy, Spain and others as the European Union’s biggest market for groceries by supermarket revenues, according to research firm IBISWorld.

France accounted for just over 8% of chocolate maker Lindt’s 2022 sales, according to the company’s annual statement and contributed 7% of Schwarzkopf hair products maker Henkel’s 2022 revenue, according to Nielsen data analysed by Barclays.

But in other cases, French revenues are small.

The country made up only 1% of Pepsico’s sales in 2022, the Nielsen data showed, about 4% of Nestle’s sales and roughly 4% of Unilever’s.

Carrefour on Thursday said it was telling customers in four European countries it will no longer sell products such as Pepsi, Lay’s crisps and 7up because they have become too costly.

Profit margins at consumer goods companies like Nestle and Unilever have in recent years ranged between about 16% and 18%, while many grocers’ margins are in the low-to-mid single digits.

The French government along with several retailers, including Carrefour, last year called out companies including Nestle, Lindt, Henkel and Unilever for sharp price hikes ahead of contract talks.

The chairman of France’s biggest supermarket chain E. Leclerc on Friday also called for all big consumer goods firms to lower their prices.

Pepsico did not respond to a request for comment. Henkel and Unilever declined to comment.

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