The fall-out between Tesco PLC (LSE:TSCO) and Kraft Heinz is another example of the supermarket giant’s often fraught relationship with its suppliers.
Tesco has issued a statement apologising for the absence of some Kraft Heinz products, saying it would not pass on “unjustifiable price increases” implemented by the US foods giant to its customers.
A spokesperson for Kraft Heinz said the company is “working closely with Tesco to resolve the situation as quickly as possible” but if it is banking on persuading Tesco to be the bad guy in this situation then, as the saying goes, good luck with that.
With around a 27% share of the UK supermarket sector, Tesco is the 800lbn gorilla in the grocery market; given that it seems to see Aldi as its major threat and Aldi is not known for stocking many nationally advertised brand names, Tesco will likely be happy to throw its weight around in its set-to with Kraft Heinz..
Tesco certainly has form when it comes to applying the squeeze on its suppliers.
Back in 2012, when things were starting to go a bit pear-shaped for the once all-conquering supermarket giant, Tesco announced it had “identified an overstatement of its expected profit for the half-year, principally due to the accelerated recognition of commercial income and delayed accrual of costs”.
That alerted the Groceries Code Adjudicator, which kicked off an investigation into Tesco’s activities between 25 June 2013 and 5 February 2015.
In 2016, the supermarket was subsequently found to have breached the Groceries Supply Code of Practice by deliberately delaying payments to suppliers and unilaterally underpaying them as it struggled to hit its financial targets.
If that did not show Tesco in a particularly good light it had better luck the same year (2016) in the so-called “Marmitegate” dispute, in which Tesco stood its ground over price increases implemented by Anglo-Dutch consumer goods giant, Unilever PLC (LSE:ULVR), maker of the disgusting jar of goo/elixir of joy (delete according to personal view).
Possibly my favourite tweet from the last few days. #MarmiteGate pic.twitter.com/7dyUIRJb9C
— Rachael Swindon (@Rachael_Swindon) October 19, 2016
Tesco quickly won the social media wars, with a backlash on Twitter against Unilever.
Ironically, at the time the boss of Tesco was “Drastic” Dave Lewis, a former Unilever luminary who might have had greater insight into how strong customer loyalty is when customers are really counting the pennies.
The two companies quickly came to an accommodation although the details of that were kept secret.
Kraft Heinz evidently is going down the same route, with the spokesperson indicating confidence that a “positive resolution” to the dispute will be negotiated.
I'm quite glad they're pushing back on the wholesale price hike. I'm down to own brand now anyway to save money. Kraft (Heinz) are relying on brand loyalty but no amount of loyalty makes your pay stretch further.
— GiveUsBiscuits ???? (@mycatisincharge) June 30, 2022
In the meantime, the US consumer goods giant can shrug its shoulders and say there are plenty of other retail outlets available to sell its heavily-advertised goods.
J Sainsbury PLC (LSE:SBRY), the number two player in the UK market, is still selling a full range of Heinz products and may emerge as one of the few winners in this barney. On the other hand, shoppers at Sainsbury’s who have now become aware of the dispute between Tesco and Kraft Heinz may be taking a closer look at the price of Heinz Baked Beans.
Further, similar disputes between food manufacturers and grocery chains seem inevitable. On the European mainland, we’ve already had Ahold Delhaize’s Albert Hejin chain – the largest in the Netherlands – yank Nestle products from its shelves after the Swiss company increased prices.
In the end, although Tesco might want to spin this dispute as an example of it standing up for hard-pressed customers, it is really about both parties seeking to preserve profit margins in an inflationary environment.
Tesco has essentially said it will not carry the can – pun intended – for Kraft Heinz’s attempts to protect its profit margin.
Tesco Vs Kraft Heinz
or
Peoples Champion
Vs
Greedy Capitalist B******s gouging inflation-hit customers
as this (presumably) Tesco-placed article wants to imply. https://t.co/IJHyGlzKTa
— David McKibbin (@creditplumber) June 30, 2022