Analysis: Carrefour-Pepsico dispute sheds light on key role of retailers' ad business
04/04/2024 16:33
By Helen Reid and Richa Naidu
LONDON, April 4 (Reuters) - Carrefour CARR.PA and
PepsiCo's PEP.O just resolved three-month price dispute has
shed light on a new aspect of such negotiations which is
changing the relationship between retailers and suppliers.
Pepsico said on Thursday the two companies had reached an
agreement that will see the food and drink conglomerate's
products, which include Pepsi, Doritos chips and Quaker oats,
return to Carrefour's shelves in France.
That agreement has yet to extend to Carrefour stores in
Belgium, Italy, Poland and Spain, according to a person familiar
with the discussions.
The dispute, which started on Jan. 4, was an example of the
increasing frictions between consumer goods giants and retailers
at a time when they push to sell more advertising makes the two
industries more interdependent.
Carrefour and Pepsico, did not disclose the terms of their
deal, but their relief was palpable.
"Delighted that our products are back in Carrefour's
aisles," PepsiCo France said on X on Thursday, while Carrefour
France CEO on Wednesday posted a photo of himself in an aisle of
Pepsi bottles with the caption: "It's great to see friends again
that we hadn't seen in a long while."
Neither group has given estimates of the three-month-long
standoff's impact on their revenues, but when the French
retailer pulled Pepsico products off its shelves it was not just
risking a hit to its sales.
It was also irking an important client of its growing
business of selling advertising space both in-store and online
-referred to jointly as retail media - to consumer goods giants
like Pepsico.
This new business, still in its infancy in Europe
compared to the United States, shifts the dynamic in pricing
talks as consumer goods firms become both clients suppliers.
When retailers pull brands as a negotiation tactic, it hurts
their relationship with suppliers and makes brands less willing
to spend on their advertising services, said one consumer goods
executive, who declined to be named.
That makes advertising budgets an ace up the sleeve of
consumer goods giants in price talks, said Laurent Thoumine,
Accenture's Europe lead for retail.
"That's important for most retailers because the net margin
you're generating for retail media is much higher than the
margin you're generating thanks to your stores," he said.
According to an eMarketer report from 2023, retail media
networks could provide margins of between 40% and 80%, while
Alvarez & Marsal forecasts that average retail margins are only
5%.
Carrefour's spat with PepsiCo is one of several recent
pricing disputes in Europe.
German retailer Edeka is in an ongoing dispute with cereal
maker Kellogg over prices, saying the company has refused to
supply it since June last year. Edeka also did not sell Mars
products for more than 18 months, from mid-2022 until a price
dispute was resolved in February this year.
Belgian supermarket chain Colruyt COLR.BR was also at odds
with Mars, maker of brands including Maltesers, Orbit chewing
gums and Royal Canin pet food, over prices at the start of this
year. It also temporarily pulled some AB InBev and Unilever
brands from stores late last year before coming to agreements
with the companies.
In pricing talks with suppliers, spending on advertising
space on the retailer's website and in stores can be a factor, a
Colruyt spokesperson told Reuters.
Consulting firm McKinsey estimates that retail media will
generate about $100 billion in advertising spending by companies
by 2026.
For companies, such as Pepsico, Unilever, Nestle, and
Danone, retailers' websites and apps offer an ideal space to
target specific consumers, while providing valuable shopper data
to measure how successful ads are in driving purchases.
In its annual report, PepsiCo listed the "increasing power
of retailers" as a key risk to its business. It said retailers
have impacted and may continue to impact its ability to compete
by demanding lower prices, removing its products, or reducing
their shelf space.
Pepsico, which according to its annual report generates 15%
of its revenue in Europe, said its beverage revenues in France
declined at a high-single-digit percentage rate in 2023 while
snacks revenues declined at a mid-single-digit rate.
Ultimately, such lengthy and high-profile disputes carry
risks for both sides. While Carrefour and other retailers
portray themselves as fighting for consumers, pulling products
is risky as branded foods are a key revenue earner and shoppers
can easily find their favourite brands elsewhere.
"If you're a number one or two retailer you have the power
to remove products, but if you're not as big, you need branded
products to get traffic into your stores," said Moritz
Kronenberger, a portfolio manager at Union Investment, a
shareholder in retailers and consumer goods companies from
Nestle and Pepsico to Carrefour.
(Reporting by Helen Reid and Richa Naidu; Editing by Matt
Scuffham and Tomasz Janowski)
((Helen.Reid@thomsonreuters.com; +44 7584 155 200 ;))