Frito-Lay standoff with Loblaw expected to change snacking landscape

The two month long dispute saw Frito-Lay Canada stop delivering a wide array of products – including Quaker oats and the Frito-Lay family of potato and corn chips – to the country’s largest grocer.

Now, Loblaw has announced the popular snacks will be back on Loblaw’s 2,400 store shelves by the Easter weekend.

“We have now mutually resolved matters with one of our valued retail partners, and we thank our loyal consumers, our employees and our customer partners for their support through this challenging time,”​ said PepsiCo spokeswoman Sheri Morgan.

“We are committed to our Canadian manufacturing and operations and look forward to resuming distribution of our products from coast to coast in the coming days.”​

Rising costs

The debate broke out over higher prices.

“Our business has faced unprecedented pressures from rising costs of items including ingredients, packaging and transportation,”​ said Morgan.

“To help offset these pressures on our Canadian operations … we have made adjustments to our prices that are consistent across the marketplace.”​

Catherine Thomas, VP of communications at Loblaw, added the vendor is “laser-focused” ​on minimising price increases for the consumer and is ramping up its potato chip selection to appeal to a wider audience. During the standoff, the Canadian retail giant was forced to rely on house brands such as President’s Choice and No Name, as well as artisanal producers, like Old Dutch and Neal Brothers Foods.

“All along, this was about providing value to our customers,” ​said Thomas.

“We’re happy to have a wider assortment in our chip aisle once again, with a mix of new Canadian flavours and classic favourites, at varying prices to suit our customers’ needs.”​

Deepening pressures

The rift highlighted the deepening pressures felt by the food industry over supply chain challenges and rising inflation, bringing to the fore the old argument of ‘protecting the consumer’ versus ‘protecting a bottom line’.

While suppliers are fighting to get retailers to take on more of the burden of inflation, some retailers argue that suppliers are using inflation to justify unreasonable price hikes. This brings in the barb that grocers are using their market strength to bully suppliers and allegedly pad their bottom lines.

“The level of frustration is growing,”​ said Michael Graydon, CEO of Food, Health & Consumer Products of Canada, which represents Frito-Lay.

“The manufacturer does not set retail pricing. It is set exclusively by the retailer.”​

He added the increase in wholesale prices suppliers are seeking from retailers may help mitigate ongoing inflation, but won’t completely offset higher costs.

Topping this was a complaint that a handful of dominant grocers were using their market position to extract new fees from suppliers, supposedly to help pay for upgrades to their e-commerce operations that jumped in popularity during the lockdown. Added to this were penalties for light shipments, even though factories struggled to maintain output.

New rules of engagement

Ultimately, though, the dispute has forced a change to level the snacking landscape and at the behest of the Canadian government, the sector is collaborating to draft a code of conduct that would implement new rules of engagement for suppliers and grocers.

Later this month, executives from PepsiCo and Loblaw will be back at the negotiating table, along with three dozen executives participating in an industry roundtable to thrash out the code of conduct.