Tesco and Heinz reach peace deal over prices

Tesco and Heinz have reached a revised supply agreement after a high-profile pricing dispute resulted in some of the ketchup maker’s products temporarily disappearing from the supermarket’s shelves.

In a joint statement, the two companies said they were “pleased to have reached an agreement that will see the full range of Heinz products return to Tesco shelves”.

“It’s great to be back together,” it concluded. Details of the revised agreement were not revealed. Retail experts said Tesco was likely to have agreed to pay a higher price than in the previous supply agreement but less than Heinz has agreed with its main rivals.

The supermarket refused to say whether retail prices would increase as a result.

Tesco is still embroiled in a separate stand-off with Mars Petcare, the US-owned maker of Whiskas cat food and Pedigree foods for dogs.

In both cases, the supermarket chain said it was not willing to pass on what it termed “unjustifiable” price increases to its customers. Both suppliers routinely achieve operating profit margins that are substantially greater than the sub-5 per cent typical of supermarkets.

Some observers have described Tesco’s assertive stance as a public relations stunt designed to engender an image of the grocer as a consumer champion, while rivals have teased the UK market leader on social media about the gaps on its shelves.

A tweet from J Sainsbury on Friday highlighted promotional pricing on Heinz tomato ketchup with the words “Out of ketchup? Not at Sainsbury’s. We’ve gone straight to the sauce to help you ready your BBQs”.

But it is also an indication of how the big supermarkets are determined not to repeat the strategic mistakes of the global financial crisis.

Back then, an attempt to preserve profit margins at the expense of price competitiveness resulted in customers turning to discounters in droves. Aldi and Lidl opened hundreds of new stores and their market share expanded from 5 per cent in 2010 to more than 15 per cent now.

Both Tesco and Sainsbury’s have since pledged to match Aldi on hundreds of core product lines, eroding the perception that the discounter is substantially cheaper.

They have also both warned investors that profit growth will be held back this year by a need to absorb price increases to retain shopper loyalty and market share.

Retail analysts believe there may be more public stand-offs as annual supply contracts are renegotiated against a backdrop of soaring prices for energy, labour and raw materials.