Potato chip giant Frito-Lay cuts off Loblaw in dispute over price hikes

Frito-Lay is refusing to ship its products to Canada in a dispute over price hikes.

Retailers have been pushing back against manufacturers trying to increase their prices to make up for supply chain delays and ballooning labour and ingredient costs. In those price negotiations, the threat to stop shipping products was considered to be a nuclear option in Canada, especially with a company like Loblaw that controls more than a third of grocery sales. Some in the industry say that refusals to ship productions are becoming more normal as food inflation is not seen in more than a decade.

Frito-Lay stopped filling orders over the weekend because of the price increase dispute, according to La Presse. The Financial Post has confirmed that the move to stop shipments means Frito-Lay's extensive roster of snacks.

Loblaw, which also owns No Frills, Shoppers Drugmart and Valu-mart, conducts detailed reviews of price requests from suppliers to make sure what they're asking for is appropriate.

In extreme cases, suppliers don't ship us products and this can lead to difficult conversations.

The Canadian supermarket business has been in turmoil due to claims that the biggest grocery stores have used their dominance in the market to squeeze their suppliers.

According to a report from market research firm IBIS World, Loblaw controls 35 per cent of the grocery market in Canada. The report did not include Walmart and Costco. Michael Graydon, who leads the manufacturing lobby group Food, Health and Consumer Products of Canada, said that the fact that one snack company would risk such a large portion of the market should underscore the severity of the situation.

He said that stopping shipments used to be a last resort for manufacturers. There is no solution.

The rising costs of labour, packaging, ingredients and shipping have created unprecedented pressures on the business of Frito-Lay.

Statistics Canada's latest consumer price index report shows that grocery bills increased in January, the highest year-over-year increase since 2009.

Diane Brisebois, CEO of the Retail Council of Canada, said that grocery stores have been flooded with extra price demands from suppliers.

Brisebois said that some price increase requests last month were three times higher than food inflation levels. You start saying, "This is unbelievable."

In the last earnings update, Richard Dufresne told analysts that his team was working hard to negotiate supplier increase requests down so that they could offer their customers the best value.

Email: jedmiston@postmedia.com