The Homa Files

Excerpted from WSJ, “Big Grocer Pulls Unilever Items Over Pricing” By C. Rohwedder, A. Patrick, and T. Martin, Feb 11, 2009

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A big grocery chain has removed from its Belgian stores about 300 Unilever products that it says are priced too high, a sign of mounting tension between retailers and suppliers as the recession grinds on. The move by Brussles-based Delhaize SA comes just days after Unilever reported strong fourth-quarter profit that was driven in large part by its ability to command big price increases despite the ailing economy.

The banished products include everything from Dove soap and Axe deodorant to a jam brand called Effi … The stare-down shows how fraught relations between retailers and their suppliers are becoming amid the severe slump in consumer spending. Grocery stores across the globe are putting growing pressure on food and drink companies to lower prices or to offer other more favorable terms … Meanwhile, consumer-goods companies such as Unilever are struggling with a drop in demand from stores whose customers are trading down to cheaper private-label brands …

Delhaize says its conflict with Unilever is rooted in the supplier’s effort to push a broad range of goods into its stores, including some that the grocer says it would prefer not to stock because they are unpopular. If the supermarket doesn’t buy the whole range of products Unilever has threatened to raise prices by an average of 30% for the remaining items …

Unilever wants Delhaize to promise it won’t stop selling Unilever products without consulting the company first, Unilever spokeswoman says. The Anglo-Dutch consumer-goods giant wants to increase prices for Delhaize by an average 2.5% … Delhaize is the only large retailer in Belgium that hasn’t agreed to a price rise this year, she says.

Unilever managed to push through steep price increases in 2008 even though the economic crisis drove down the prices of many commodities. In the fourth quarter, its prices rose more than 9% world-wide. But the company could be about to change strategy. A new chief executive, Paul Polman, said that Unilever will now concentrate on increasing the volume of items it sells, suggesting he may moderate future price increases.

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Last month, the chief executive of British retailer Tesco PLC, urged suppliers to pass on to stores the recent drops in commodity and oil prices. “These lower prices need to be fed into the supply chain and passed on to consumers who are under growing financial pressure” … 

Deborah Weinswig, an analyst for Citi believes Wal-Mart’s plans to freshen up its Great Value brand will trigger more price cutting on the national brands sold at Wal-Mart. And if Wal-Mart reduces its national-brand prices, “I think the food retailers will have to follow or they will be at risk of losing market share,” she says.

SuperValu Chairman said during an earnings call last month that the 2009 first half would be a “battle ground” with manufacturers over price. Kroger declined to comment, but Chairman David Dillon said in a conference call on third-quarter earnings that Kroger’s strong private-label program, which accounted for 27% of third-quarter sales, gives the grocer leverage when suppliers approach it about a cost increase.

If national brands won’t lower prices, he added, the store’s private labels “will just pick up even more market share than we have already” …

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Full Article:
http://online.wsj.com/article/SB123430797027570341.html

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This entry was posted on March 12, 2009 at 7:00 am and is filed under Mktg - Distribution, Mktg - Pricing, Retailing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.