Pepsi vs Carrefour: a battle inflamed by French retail rules

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No one likes to be dumped. Not even a mighty global brand like PepsiCo, it seems.

Last week the US drinks and snacks maker insisted that it had not been pulled from the shelves of France’s Carrefour, which a few days earlier had banned PepsiCo for demanding “unacceptable” price increases. In fact, said PepsiCo, it had dumped Carrefour last year after failing to reach agreement on pricing, accusing the French grocer of mischaracterising the chain of events.

Price disputes between food retailers and their suppliers are as old as time, and temporary product bans are not unheard of. Normally, they are resolved. But the bun fight being waged in France right now is still more than usually heated. 

Discussions have been strained by a host of new regulations that are curtailing retailers’ ability to lower prices, while encouraging suppliers to play hardball. 

First, the government has ordered annual price negotiations between retailers and suppliers to finish by the end of this month instead of March, as dictated by the country’s commercial code. 

Second, lawmakers have passed new rules that restrict retailers’ ability to source products on a pan-European basis. Negotiations relating to food products sold in French stores are subject to French regulations — even if the discussions are conducted in another country. In many cases, those French regulations dictate minimum pricing on products. In addition, the rules cap discounts that retailers can give on health, beauty and hygiene products to 34 per cent. The law’s aim is to ensure that small local suppliers are not squeezed by retailers demanding price cuts that only the big multinational brands can afford.

France takes an unusually interventionist stance on food retailing. Politicians are keenly aware that French voters are highly sensitive to the cost of living, and have been since bread prices contributed to a revolution 235 years ago. The Banque de France noted last year that the top two priorities for a majority of French were inflation and purchasing power. Food price inflation hit an all-time high in 2023, and while that has since retreated, no one wants a repeat of the Gilets Jaunes protests of 2018-2020.

The government’s decision to accelerate the price discussions this year was meant to give consumers access to lower prices more quickly. It will fail. Not only is there no chance of an outright reduction in French food prices, the accelerated timetable appears to have spurred PepsiCo’s hard line stance. Retailers such as Carrefour face hefty fines if they do not meet the deadline and PepsiCo knows that.

The problem with France’s counterproductive regulations is that the big multinational brands have ended up the biggest beneficiaries, and many have no intention of cutting prices.

“It is the perfect storm for retailers in France,” says Ananda Roy of consumer consultancy Circana. “The retailer wants to be seen as the friend of the consumer but they have to satisfy very severe regulations. They are constrained from offering consumers the best possible price and can’t give promotions that would drive footfall to their stores. Brands have been handed a very strong negotiating position.” 

PepsiCo has been one of the most aggressive, largely because consumers keep buying its products. The price of Lay’s potato chips was lifted 25 per cent in the year to end September, against an average increase of just 7-10 per cent for the category, according to market research group, Kantar. It is now asking for another price increase of about 7 per cent, a person close to the discussions said. One French retailer also told me that makes a rise of close to 30 per cent over two years.

Carrefour’s chief executive Alexandre Bompard has been outspoken about the injustice of such big price increases for the brands. Roy says such brands already enjoy double digit margins above 15 per cent, while retailers struggle on wafer thin returns of less than 5 per cent.

In the end, consumers will decide how far PepsiCo can push the limit. Yet there are signs that Carrefour believes the limit is fast approaching. PepsiCo products may not be on Carrefour shelves right now but shoppers might find similar snacks under the supermarket chain’s own label close to signage denouncing the US company’s “unacceptable” price demands. If customers are buying increasing volumes of snacks, why not use the current dispute to snare a share — gaining a reputation as the consumer’s champion along the way? Given the harsh regulatory environment in France, retailers have little choice but to spot any opportunity in adversity.

peggy.hollinger@ft.com