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At a virtual meeting in December, Whole Foods implored suppliers to lower costs on packaged groceries as inflation moderates.

According to The Wall Street Journal , Whole Foods SVP of merchandising Alyssa Vescio told vendors, “We know our customers are weighing the impacts of inflationary pressures on their buying choices.”

Walmart, according to Reuters , has warned major packaged goods makers against additional price increases. Rod Little, CEO of Schick razor maker Edgewell Personal Care, told Reuters, “Because the consumer is now under more pressure, and Walmart is under pressure, that sets up a dynamic where there’s probably not a lot of pricing going forward.”

According to a Washington Post article, retailers are asking vendors for proof they need to keep prices high or risk finding their product orders canceled or receiving poor shelf placement and being less promoted. The report indicated mainstream food sellers are increasingly concerned about losing share to Aldi, Dollar General and other grocery product discounters.

Bobby Gibbs, a partner at Oliver Wyman, told the Post , “In the last few months, we’ve seen the shift away from trying to fight cost increases to pushing for [vendor] cost decreases.”

Recent surveys and retailer comments on quarterly calls indicate consumers are buying fewer items, seeking discounts and opting for in-house brands amid escalating inflation.

Inflation has slowed in recent months but remains three times higher than the Federal Reserve’s target rate. Grocery inflation has come down at a slower rate.

Prices for freight, cardboard and polypropylene resin — a common plastic used in packaging — have dropped, but wages and other raw material prices remain elevated. Unilever, Nestle , Procter & Gamble , Kimberly Clark and Colgate are among those planning to increase prices at least in the first half to offset costs, despite many seeing lower volumes.

“Cost inflation is going to remain a key theme in 2023,” Graeme Pitkethly, Unilever’s CFO, told analysts last week on a quarterly call . “We successfully managed the trade-offs between price, margin and competitiveness across 2022 and are confident that we can continue to manage these relationships dynamically as the cost landscape evolves through the year.”

DISCUSSION QUESTIONS: Do grocers have the leverage it takes to strong-arm their suppliers into reducing prices? Is it wise or foolish at this time for retailers to exploit their clout?

26 Comments on "Should grocers be demanding price decreases from suppliers?"

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Grocers have always asked manufacturers for better pricing; now they have the consumer and the economy as additional reasons to push. Costs are rising, for certain, but there is a point where consumers won’t absorb those cost increases.

Retailers, especially in grocery, have always been tough negotiators on price. They have to be because very small shifts in unit economics have an enormous impact on the bottom line. For mainstream food retailers this is even more imperative as they face an erosion of share to value players like Aldi and the dollar chains, so they need to sharpen their pricing to arrest the trend. All of this generally works in the interest of consumers, but I’d expect more scuffles between manufactures and retailers as they negotiate pricing in the year ahead — this may include temporary delistings which we have seen happen, among others, at Tesco in the UK.

This should not be about retailers strong-arming or exploiting their clout, it should be about working in partnership with suppliers for the long term. Prices are too high in many categories, and both retailers and their suppliers need to work in true collaboration on pricing and try to balance those categories where they can absorb some of the cost increases with others where they cannot. Short term and quarterly numbers are important, of course, but until inflation cools, prices stabilize and shoppers start to feel more confident, this will get worse unless retailers and suppliers start to work in partnership for the industry to remain somewhat healthy.

It’s not about grocers having leverage to “strong-arm” suppliers into reducing prices. There is a better way, and that is partnership. The retailer and supplier need to sit down and find ways to reduce costs without eroding margins. There may be creative ideas that can come out of this meeting. It can be as simple as a different ordering and delivery schedule. There are many ways to find “money” that can be passed on to the consumer in the form of lower costs. It’s just a matter of people sitting down and finding ways to do so.

Yes – retailers should advocate for their customers and their bottom lines through cost negotiations. It is highly situational though as those vendors have also experienced cost increases, some brands have more power than others and every retailer and merchant are coming from a different strategic position and customer base. Ultimately, retailers need to go about this in an intelligent manner and use the best prescriptive analytics to clearly demonstrate the impacts on pricing and unit volume of different cost structures, while aiming for solutions that are a win-win-win for vendors, retailers and consumers alike. In fact, the most savvy retailers have already been doing this for the past several months to combat inflation and have been able to push back in the right places with great success. If you can demonstrate a drop in unit volume as the result of a cost increase and offer mutually beneficial alternatives, the possibilities are endless.

When inflation recedes, it doesn’t mean prices will go down. Inflation sets a new bottom that can’t be crossed.

Suppliers may risk finding their product orders canceled or receiving poor shelf placement and being less promoted. But that threat only has teeth if some suppliers reduce prices, which is not likely. Surely the retailer will not mess around with Tide, Oreos, or Coke.

The reality of the threat is that it is nothing more than talk. And if it happened, would the retailer really drop their prices? If they did, they would be cutting their absolute margin. As I have repeated several times, inflation helps the retailer’s bottom line.

Good points. I recall writing the CEO of an online floral provider who continued to assess a “fuel surcharge” a year after the last big oil run up. The fuel prices went down — the surcharge didn’t go away for quite some time.

FedEx, UPS, and YRC still continue to assess fuel surcharges — and somehow they manage to keep increasing them each year regardless of the cost of gasoline — and regardless of by how much their base rates increase.

Corrugated cardboard for shipping cases has flattened out*, but the paper stock for retail cartons and containers is still rising by high single digits even through this winter — slower than 2021’s pace by 2/3rds but still has not stopped.

In both cases we are dealing with less than a handful of suppliers who have a chokehold on economy –wide critical costs, and who face no power that can make them back off — Kroger can yell at my midsize company all they want, but I can’t make Weyerhauser or International Paper reopen mills and flood the market with specialty stock to bring the cost down.

* Yes, I made a bit of a pun there.

Retailers think they have the leverage — I’m betting very few do. Maybe Walmart and Kroger, not many others. Manufacturers have less to worry about with de-listing than they do brand switching to less expensive products. My Skyline chili tasted just as good on Super Bowl Sunday night with store brand products at two-thirds the price.

Excellent point. Consumers’ switch to store brands could be exactly the kind of leverage retailers will apply when negotiating with branded suppliers. Brands don’t want to lose facings on the shelves.

Grocers have more tools at their disposal now than ever before to leverage price concessions from their vendors. Expanding private label and reducing branded facings on planograms comes to mind. We also see more aggressive chargebacks from retailers. Tight shipping windows with penalties for any misses, higher slotting fees, and allocating shortage expenses to vendors, to name a few. As a former grocer, I think the time is right to push back on vendors who, in some cases, used the pandemic and supply chain issues as a smokescreen to raise prices and improve their margins. This came at the expense of the consumer and the retailer. Pushing back makes sense and allows them to position themselves as customer advocates. Sam Walton certainly understood this in his day.

Retailers can try to work together with manufacturers on lowering prices, but the impacts of inflation don’t just go away after a month or two. This is a long-term scenario, unfortunately, and will take more than inflation rates starting to drop for this to alleviate.

Whole Foods, Kroger, Walmart and other big guys have leverage. John’s Food 4 Less, a one-store operator in mid-America, does not have leverage.

We are reaching a tipping point on vendor related cost increases. Some retailers have absorbed the price increases for some time, but I don’t know how much longer that will last. If a grocer has a robust private label program, they can leverage some of that vs. CPG increases, but again due to things like fuel surcharges and the like, I don’t know how far you can go down that road. Grocers are currently stuck in a corner.

Shoppers vote with their feet and their wallet. Retailers vote with their pencil. That’s a pretty powerful combination for suppliers to consider when making their pricing decisions.

Absolutely. There are plenty of consumers who check out egg prices and then walk away from the refrigerator case empty-handed. A lot of consumers know they’re being gouged and they’re changing buying habits as a result.

Leading grocers have the retail power to demand price reductions to align with consumers’ demand for value.

Depending on the retailer-supplier relationship, it can be wise to speak up now to protect consumers’ wallets. The time is right for retailers to build a robust private label strategy as an affordable alternative.

Unfortunately the effects of inflation are going to be felt for a long time, which is crummy news for all of us consumers. Retailers should collaborate with their supplier partners and work towards mutually beneficial terms and arrangements where they both get wins. It’s not easy, but it can and should be done. Several large CPGs just announced Q4 and 2022 annual earnings, and many beat target forecasts. Clearly, there is room for negotiation.

Retailers are under pressure and so are manufacturers, a slowing of inflation does not mean deflation so it is not easy to see prices falling in the short term. Retailers are tough negotiators and have always pushed suppliers to carry their share or more than their share of the pain. To an extent retailers quite like inflation as it helps revenue growth and can also help bottom line as stock revaluation is positive. Battles will continue and the consumer is the real winner even if they have endured a huge hit on their living standard through the high rate of inflation and lower wage increases.

Cardboard, gas/transportation and commodity pricing in some (not all) consumer product categories are falling, so retailer push back on price is reasonable and not at all surprising. Whether they have the leverage to demand it will depend on how strong consumer demand is for a given brand and how concentrated that brand’s volume is with one retailer or a subset of retailers. Strong brands with diversified distribution should be able to remain strong on price, others will be challenged.

Grocers need little encouragement to be demanding to their suppliers. It’s in their DNA.

When I think of leverage, I remember the see-saws we played on as young kids. The most distressing part was when I was at the top and my partner decided to either hold me hostage or just jump off really quickly and watch me squirm as I came down with a slam! Grocery-Supplier leverage isn’t much different. To be sure, I decided to play on the slides after that.

Brands and retailers have an opportunity to align on this pricing challenge if they focus collaboratively on upstream cost drivers. Crop and raw materials costs do have potential to level off — even decline in the instance of chicken eggs.

Retailers can easily detect when brands simply add markups to cover cost of goods and distribution. So they should advocate on behalf of their shared customers.

When powerhouses like Walmart and Kroger press this issue, brands know they cannot deal unevenly with other retailers, or risk being called out for anticompetitive practices. So regional retailers and those served by wholesalers have a bit of collective leverage too.

I’d expect the current round of price increases to level off by the end of this year, as suppliers find their upper limits and get back to using promotions to drive total margins.

Comparing Walmart to Whole Foods reminds me of that Looney Tunes — Spike and Chester — with the two dogs, one a bulldog, and the other a little yippy thing that tried to throw his weight around.

Where were we? Oh yes, once again I see a semantics problem: slowing inflation is by no means the same thing as deflation. I can see a case for the former, the latter is harder to envision. It’s true there has been a(n actual) decrease in fuel costs, and as that’s a component of pricing, both in manufacturing and (even more so in) transportation, it’s not impossible; but that’s only one element of a complex picture.

These grocery/CG price wars have been playing out across Europe for a year now and tend to find a resolution, but not before some high profile delistings while negotiations unfold. When manufacturers implement blunt price rises across the board it damages retail relationships as well as brand reputation. Taking a more strategic approach to pricing by brand and product line will deliver better margins and also allow them to justify the changes. The trouble is not many brands have the data or pricing systems to do this.

Customers usually shop from their preferred retail brands. Therefore, regardless of the increasing prices, customers who prefer or like a retailer’s offerings will continue to buy their products.

In my opinion, despite the price hikes by suppliers, retailers can take advantage of this opportunity by promoting their own private labels to customers looking for discounts and in-house brands. This way, retailers can gain market control and pull all the strings in their favor.

When do you see cost inflation easing for food sellers?