Kraft Heinz has stopped supplying some of its popular products to Tesco due to a fallout over “unjustifiable” price increases.
Stocks of items such as Heinz baked beans, Salad Cream, and tomato ketchup are running low in some Tesco stores after negotiations between two of the giants of the food industry broke down.
As with most food manufacturers, Kraft Heinz is battling rising commodity and production costs, and has been raising prices in other supermarkets by as much as 40% on some lines.
A Tesco spokesperson said: “With household budgets under increasing pressure, now more than ever we have a responsibility to ensure customers get the best possible value, and we will not pass on unjustifiable price increases to our customers.
“We’re sorry that this means some products aren’t available right now, but we have plenty of alternatives to choose from, and we hope to have this issue resolved soon.”
Meanwhile, Kraft Heinz said: “We are working closely with Tesco to resolve the situation as quickly as possible. In today’s challenging economic environment – with commodity and production costs rising – many consumers are working within tight budgets.
“We always look at how we can provide value through price, size and packs so consumers can enjoy the products they love and trust at a price point that works within their budgets, without compromising on quality. We are confident of a positive resolution with Tesco.”
The spat highlights the issue of whether manufacturers, retailers or consumers should bear the most pain of soaring cost inflation. Reports in recent weeks suggest tensions have been building throughout the supply chain, with retailers and manufacturers locked in extended price negotiations. Tesco had similar fallout over price increases with Colgate-Palmolive earlier this year.
Ged Futter, founder of consultancy The Retail Mind, said the price rises at Heinz were not surprising given that costs were rising by between 20% and 40% across many categories.
He revealed that the businesses he worked with had put up prices by an average of 25% in the past year as the cost of energy, fuel, ingredients, and packaging materials had all risen substantially.
Futter said: “Tesco has said it is going to be ‘least and last’ with price rises, and for suppliers they have to decide whether to give Tesco a better deal or if [all their clients] are getting the same deal and if Tesco don’t like it they are not going to deliver,”
He suggested that there will be a resolution soon as Tesco can’t afford not to have Heinz products on its shelves and Heinz can’t afford to not be in Tesco. “It’s just a matter of what that resolution looks like,” Futter said.
Meanwhile, retail analyst Steve Dresser from Grocery Insight, highlighted that the issue was reminiscent of the saga of 2016 when brands such as Marmite and PG Tips were taken off Tesco shelves after Unilever put up prices.
“Despite rising cost prices, Tesco are right to use their scale and size to resist unilateral price increases, given that these rises will have to be passed on to customers,” he said.
“Larger suppliers like Heinz are significantly sized businesses in their own right and one would hope they were doing their bit to limit the scale of cost price increases, instead of merely passing them on.”
NAM Implications:
- The spat highlights the issue of whether manufacturers, retailers or consumers should bear the most pain of soaring cost inflation.
- Deep down, it is a question (and test) of brand pulling power with the consumer.
- There will be gains and losses across the Heinz portfolio…
- …with opportunities arising for rivals in parts of the category/s.
- Rivals need to be cautious re not having raised prices sufficiently…
- …causing apparent competitive edges, short term.
