Several supermarket chains criticize the Financial Newspaper large A-brands that would exaggerate the increase in their costs and want to raise their prices more than justifies inflation. They would ‘abuse’ inflation to increase their profit margin.
This does not go down well with supermarket chains, because they make an effort to keep prices as low as possible for their customers. The same sounds can be heard from Belgium. “The negotiations have never been so difficult historically,” says Delhaize’s Roel Dekelver in The morning.
Cost increases on all fronts
It is indeed true that the costs for suppliers have risen on all fronts. Not only is there inflation, but also the costs of energy, transport, raw materials, packaging, transport and personnel increased due to the corona pandemic and supply chain disruptions. Several large suppliers, such as Unilever, have already indicated in recent months that the increased costs will inevitably translate into cost increases for consumers.
The retail prices of supermarket suppliers would have to increase by an average of 9 to 10% to cover the increased costs. But that is unmentionable for supermarkets
And so the supermarkets want to know exactly what the cost increases are in the negotiations. Is the processing industry making a profit? “The suppliers come up with their tables of the increased costs in recent months,” says Dekelver. “But they extrapolate these to the rest of the coming year, while some costs have already fallen. So some come with unrealistic contracts.”
In any case, there is not much room for (hefty) increases. According to Rabobank economist Sebastiaan Schreijen, the selling prices of supermarket suppliers would have to rise by an ‘unprecedented’ 9 to 10% to cover the increased costs. That is unmentionable for supermarkets, which are used to turnover based on high numbers of products with small margins. For example, Jumbo CFO Ton van Veen says in the FD that he had a profit margin of 2% in 2020. “Then I cannot absorb a cost price increase of 5%.”
In addition, the supermarkets are fighting each other. In the Netherlands and Belgium, the large formats such as Albert Heijn and Jumbo are fighting for every percentage of market share, as well as for customer loyalty. The weapon of choice is the price. So it’s no wonder that supermarkets are putting pressure on suppliers. Sometimes, as recently in the case of Colruyt, by banning a certain product (Nutella in small jars) from the shelves. Suppliers are suffering from the loss of turnover because in many cases they also have to run significant numbers to be profitable and feel it directly in the profit and loss account if such situations continue for too long.
‘Checks and balances’
Unnecessary price increases are undesirable for suppliers if they undermine the turnover of supermarkets too much. They need the supermarket to survive on their own. Yet they are now being handed the Zwarte Piet. Cees-Jan Adema, director of FNLI, the umbrella organization of Dutch food processing companies, thinks this is unjustified. Adema calls the annual price negotiation circus a “system of checks and balances”. According to him, there is no question of a Zwarte Piet game or the bashing of the producers who would like to make a profit from inflation.
the checks and balances are on the side of the producers themselves as well as in the negotiations with the supermarkets. Faced with unprecedented price increases, suppliers’ first reflex is to cut costs, Adema points out. But at a certain point that can no longer be done with impunity. Furthermore, the competition between processing companies that supply supermarkets also limits price inflation: nobody wants to price themselves out of the market.
“Ultimately, it is in everyone’s interest to come to a fair agreement. The last thing that benefits us is a high price for the consumer.” Because everyone is affected by inflation and cost increases, it is inevitable that prices will rise. “We must mutually understand this exceptional situation, then we will come to an agreement in mutual consultation,” expects Adema.
We wish to thank the author of this article for this remarkable content
Cees-Jan Adema (FNLI) about fierce negotiations – Joint interests of supermarkets and suppliers keep food inflation as low as possible – Foodlog