Retail is struggling with the food industry. What is behind the dispute between manufacturers and dealers: The rising prices across the board are leading to distribution battles. Whether there will ultimately be a winner or only losers is an open question. In the end, customers have little choice.
Since September 1, the Coca-Cola Group has no longer supplied the Edeka stores with its products. In addition to the main brand, this also includes a large number of other drinks, such as Fanta or Sprite. If no agreement can be reached, the corresponding shelves in the supermarket will soon remain empty.
A few weeks ago, Coca-Cola announced price increases of eight to eleven percent to German retailers as of September 1st. Despite the market power of supermarket chains such as Rewe, Edeka, Aldi and Lidl, the industry has so far not backed down. After all, the big four represent around eighty percent of the German food retail trade. According to reports, there is a hard struggle in the background for better conditions.
Because Coca-Cola is not an isolated case: Manufacturers are trying to pass on the sharply increased prices for raw materials, energy and labor costs across the board, and by no means 100%, as the industry assures. On the contrary, the increases would be well below what you have to bear yourself.
Rewe boss Lionel Souque, for example, does not want to let that stand: “Many are simply free riders,” he says, meaning that some suppliers would ride the current price wave without being so significantly affected by inflation and higher costs themselves. “Rewe always checks carefully whether increases are justified,” assures Souque. You also owe that to your own customers, to whom you cannot and do not want to pass on such price increases one-to-one.
Rewe or Edeka as well as the discounters know how to use their own knowledge as criteria, because they all have their own brands in the program, where they can follow the production process and the costs meticulously. They don’t get any insights from the brand manufacturers, but they do get an idea of their problems. Also: Large corporations such as Nestlé, Danone or Unilever recently reported on a very good first half of 2022, which of course did not go unnoticed by retailers.
In addition to Coca-Cola, the US group Mars recently made a name for itself when it announced significantly higher prices for its product range. A delisting of its range would then leave clear gaps in the offer. In addition to the well-known confectionery, Mars also supplies animal feed such as “Whiskas”; Chewing gum or rice (Uncle Ben’s) and instant pasta (“Miracoli”).
The supermarkets cannot replace everything with their own offers, and there is also a strong customer loyalty with many brands – meaning that consumers would definitely miss the missing products. Especially since the list of manufacturers announcing price increases is getting longer and longer. Recently, the large brewery Radeberger pushed ahead – from December it should be significantly more expensive. In addition to Kellogg’s cornflakes and Milka chocolate, disputes also raged and raged about other well-known brands.
Milka manufacturer Mondelez allegedly charges significantly less per bar in neighboring countries than in Germany, which upsets retailers: Germany has always had the reputation of offering the cheapest food in Europe. Now the competitors in the Netherlands or France are apparently negotiating harder.
So there is fighting behind the scenes of trade, as Dr. Jens Weng from the strategy consultancy EY Parthenon: “Price negotiations are traditionally tough there and more confrontational than in other sectors. The mindset often still prevails: we share the cake instead of saying: we make it bigger. It just happened that way historically.”
However, German customers in the industry are also considered to be particularly price-sensitive. Which is why, according to consumer advice centres, practices that are classified as “cheating” are creeping in again. For example, the price for branded margarine (“Rama”) has remained the same, as has the pack size, although the content has shrunk from 500 grams to 400 grams. Something similar can be observed with Haribo products or Knorr soup.
The consumer centers advise customers to always pay attention not only to the pack sizes, but also to the stated basic price per kilo. But consumers will not be able to avoid general price increases in the long term, even when they reach for fundamentally cheaper offers. Because the supermarkets themselves have to shoulder higher costs, especially for energy, rent or other fixed costs, which they are said to be trying not to pass on completely to the customer.
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In the sometimes unequal struggle of the industry, the discounters currently have the slightly better cards compared to the full-range providers such as Edeka or Rewe. On the one hand, they increase their sales more significantly in times of crisis. In July, the Gesellschaft für Verbraucherforschung (GfK) identified a nine percent increase in sales at discounters, while other supermarkets only recorded a barely measurable increase.
On the other hand, they dare to simply list brands whose asking price they do not accept. Aldi, for example, comes from the tradition of own brands and has only gradually started to include branded products in its range – people think they can afford a reduction. Above all, Aldi or Lidl demand longer-term price guarantees from their suppliers, which they naturally refuse in the current situation.
In the past, there was sometimes a compromise solution between manufacturers and retailers: “With some price increases in the past, you also have to see that although the list prices of the brewery or the confectionery manufacturer increased, the big players in the industry such as Edeka or Rewe, in turn, offered additional conditions in the same way could negotiate height,” says strategy researcher Jens Weng. So everything remained as it was, at least for the long-established trade.
However, there were always long periods when something was not on the shelf. The dispute between Edeka and Eckes-Granini is legendary: their juices have not been available for more than a year, and things have already been similar with Pepsi. It is questionable whether one wants to afford such longer disputes this time, because the damage should be noticeable for everyone. In the meantime, however, further headlines from the industry can be expected.
The article “What threatens us if the fight over food prices continues” comes from WirtschaftsKurier.