Analysis: Consumer goods firms' pricing woes may spread beyond France
21/09/2023 07:00
(Repeats Wednesday story without changes)
By Richa Naidu and Helen Reid
Sept 20 (Reuters) - Consumer goods firms like Nestle
NESN.S , Lindt LISN.S and Unilever ULVR.L may face
increased pressure across Europe to cut prices after being
singled out by French retailers and politicians, industry
experts say.
Ahead of contract talks due to start by next month,
supermarket chain Carrefour CARR.PA has slapped price warnings
on products to pressure top consumer goods suppliers including
Nestle, PepsiCo PEP.O and Unilever to reduce inflation.
France is a crucial country for 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. The French
government is considering bringing forward annual price
negotiations between food producers and supermarkets, and aims
to have secured price cuts by mid-January.
Its actions could encourage other countries within the EU to
follow suit, industry experts say. Retailers' bargaining
positions are also strengthened by international alliances with
each other that increase their clout with suppliers.
That means consumer groups will face pressure to rein back
prices across the European Union.
"It's not only about the impact on the French market - it's
about the potential ripple effect," said Laurent Thoumine,
Europe lead for consultancy Accenture's retail industry
practice.
Thoumine expects price negotiations in France to be the
toughest the industry has faced for a decade.
"There are some brands that are untouchable - you cannot
remove those brands from your shelves," Thoumine said, naming
Ferrero's Nutella, Pernod Ricard's Ricard aperitif and
Coca-Cola's sodas as particularly strong.
But if a product is not "essential" talks will be difficult,
he added, because they can be replaced easily with private label
alternatives.
PRESSURE
French grocer Systeme U is part of Epic Partners, one of
several European international purchasing groups. Germany's
Edeka, Switzerland's Migros, Italy's Esselunga and Belgium's
Colruyt are also reported to be part of the alliance.
Because these supermarkets are in different countries and do
not compete with one another, they often combine forces to
negotiate with consumer goods makers.
That has prompted accusations of collusion, which retailers
deny.
"We buy as a group, not to evade any law but in order to
have sufficient clout against manufacturers," Philippe Michaud,
co-president of supermarket group E. Leclerc, told French
lawmakers on Wednesday. E. Leclerc is part of Eurelec, another
buying alliance.
French Finance Minister Bruno Le Maire in June urged 75
consumer companies to cut prices. After a new round of meetings
last month, Le Maire called out Unilever, Nestle and PepsiCo for
not "cooperating."
"I don't think this is just localised to France," Richard
Saldanha, a portfolio manager at Britain's Aviva Investors,
said. "There is pressure and I think governments are starting to
look at this more closely."
Nestle and Unilever did not comment, while Lindt did not
immediately respond to a request for comment. The retailers
mentioned in this story did not respond to requests for comment,
except Systeme U, which confirmed it was part of Epic Partners.
Paris is not alone in Europe in its eagerness to bring down
the price of food and other staples.
Reuters reported in July that Italy's government is trying
to broker a deal with supermarkets and producers to control
prices of essential consumer goods in a measure that would be
implemented in the final three months of this year.
The Greek government said on Wednesday that big supermarkets
there will need to share with authorities their price lists for
basic foods.
Consumer goods makers have for more than two years grappled
with sky-rocketing input, supply chain and labour costs that
they have either absorbed - taking a hit to margins - or passed
on to retailers. Those cost pressures are easing off now,
however, and investors have voiced concerns that raising prices
will alienate shoppers and hit sales volumes.
"What's going on in France is interesting as you're starting
to see higher costs rollover," Saldanha said. "The key for us
from an investor standpoint is trying to understand: are these
price increases justified?"
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(Reporting by Richa Naidu and Helen Reid; Editing by Matt
Scuffham and Catherine Evans)
((richa.naidu@tr.com; Follow me on Twitter https://twitter.com/Richa_Writes;
+44 755 755 9587;))