A century old store is facing a major crisis!
The global supermarket giant Carrefour and PepsiCo collapsed. The company informed customers from four European countries that it will no longer sell products such as Pepsi, Pepsi chips, and 7Up. Since Thursday, the Pepsi Cola product shelves of Carrefour stores in France, Italy, Spain and Belgium will be pasted with slogans saying that "because the price rise is unacceptable", the store will no longer purchase these brand products. Grocery retailers in several countries, including Germany and Belgium, have also stopped orders from consumer goods companies.
This incident is actually a microcosm of global inflation.
However, strangely enough, at the end of last year, investment bank Jefferies analyst Kaumil Gajrawala suggested investors buy PepsiCo, calling it the most enduring company in the beverage industry. He expects PepsiCo's stock price to rise by more than 20% in 2024, reaching $203, thereby pushing the company's market value to $279 billion.
Talk about collapse+block
On January 4, local time, Carrefour told customers from four European countries that it would no longer sell Pepsi Cola, Lay's potato chips, 7Up and other products, because the cost of these products to Carrefour was too high in a recent price war.
The spokesman of the French supermarket said that since Thursday, the Pepsi Cola product shelves of Carrefour stores in France, Italy, Spain and Belgium will be pasted with slogans, saying that "because the price rise is unacceptable", the store will no longer purchase these brand products.
According to Carrefour's 2022 annual report, Carrefour's move has affected more than 9000 stores in these four countries, accounting for two-thirds of the retailer's 14348 stores worldwide.
Grocery retailers in several countries, including Germany and Belgium, have also stopped orders from consumer goods companies as a strategy in price negotiations, which have become more concerning due to inflation.
PepsiCo said in a statement: "We have discussed with Carrefour for several months, and we will continue to cooperate sincerely to ensure our product supply."
On Thursday, Pepsi products such as Qiduo and 7Up were closed in a Carrefour supermarket in the 16th luxury district of Paris, while other products, including Pepsi Cola, were still on the shelves. Customers in supermarkets generally welcome this move. "I'm not surprised at all," shopper Edith Carpenter told the media. "I think there will be many products on the shelves because they have become too expensive, and they are all things we can avoid buying."
PepsiCo announced in October last year that due to rising demand, it plans to "slightly" raise prices, leading to its third consecutive increase in profit expectations for 2023. Prior to this, PepsiCo had raised prices for seven consecutive quarters. This approach of "chasing inflation with price increases" clearly puts pressure on supermarket revenue and forces retailers to demand price reductions in a new round of price negotiations.
Carrefour has also been one of the most active retailers challenging large consumer goods and food companies on price issues. Last year, the company launched a "contraction inflation" campaign, placing warnings on products that are smaller in size but higher in price. In order to reduce inflation, the French government requires retailers and suppliers to complete annual price negotiations in January, two months earlier than usual.
What sets France apart in Europe is its strict regulation of the retail industry, forcing supermarkets to negotiate prices with food and beverage producers only once a year to protect its agricultural industry.
But in the final round of negotiations at the beginning of last year, when the inflation crisis was most severe, prices rose significantly across the board, which hit the turnover of supermarkets and prompted them to negotiate price reductions in this round of negotiations.
James Walton, Chief Economist of the Institute of Grocery Distribution, said that this is clearly the last resort because if there are no products on the shelves that people want, no one will win.
A miniature
In fact, the above events are a microcosm of inflation. Due to significant interest rate hikes by the European Central Bank and efforts by European countries to relax energy and food prices, inflation in the Eurozone fell to a two-year low in November 2023, with a much faster than expected decline. In France, the annual inflation rate increased by 3.7% in December, a one-third decrease from the same period last year.
The rise in food prices is particularly persistent. A typical basket of basic foods in France, from pasta to yogurt, is still 7% higher than a year ago. Some manufacturers claim that due to particularly high input costs, the profit margin in Europe is lower than the average, proving that these costs are reasonable.
"Although the price increase is at a historical high, it is still not enough to make up for the cost increase we have experienced," said Graeme Pitkethy, Chief Financial Officer of Unilever, to analysts in October 2023
French President Emmanuel Macron has stated that he hopes to see food prices drop by at least 5% to reflect the overall decline in raw material costs, which has begun to emerge after more than a year of record high prices.
Last year, many global consumer goods companies raised prices by double digits. They usually attribute the price increase to the increase in raw material and labor costs. At the same time, many of these companies report expanding profits due to selling fewer goods at higher prices.
In recent months, companies have reported that shoppers are under greater pressure from inflation and high interest rates. Consumer product sales companies, including Pepsi, reported that they have noticed customers tightening their wallets.
"I do believe that we are seeing consumers becoming more picky now," Hugh Johnston, then Chief Financial Officer of PepsiCo, told analysts during a earnings conference call in October last year. "You will see some value orientations."
Retailers are eager to see prices drop. Executives of Wal Mart, the largest retailer in the United States, welcomed the slowdown in commodity prices before the holiday season, but were worried about the high food prices.
Doug McMillon, CEO of Wal Mart, said to analysts last November: "Some of the deflation we see is helping, but we hope to see more and faster situations, especially in the category of dry groceries and consumer goods."
The aforementioned measures taken by France come as Europe is adopting a broader momentum to address the ongoing cost of living crisis even in the face of economic downturn. In Italy, the government is trying to pressure retailers and manufacturers to lower food prices. The Greek government has started requiring supermarkets to report the prices charged for basic food. Other large French chain supermarkets have indicated that they may follow suit.
Previously, a research report pointed out that Pepsi may surpass Coca Cola. So, in the current context, whether we can succeed or not may still require a question mark.
