‘Tesco–Heinz spat must be the last retailer–supplier row to play out in public’

UK grocery giant Tesco and US FMCG titan Kraft Heinz have butted heads over the latter’s steep price rise demands, leading Heinz to pause supply of its baked beans, ketchup and salad cream from its shelves after refusing to pass the added costs onto its customers. 

Tesco said that “with household budgets under increasing pressure, now more than ever we have a responsibility to ensure customers get the best possible value, and we will not pass on unjustifiable price increases to our customers.

“We’re sorry that this means some products aren’t available right now, but we have plenty of alternatives to choose from and we hope to have this issue resolved soon.”

Ultimately, a swift resolution will be reached to what one supermarket source described as “a classic retailer-supplier spat”.

One need only look back to 2016 when a similar dispute with Unilever led Tesco to pull Marmite from its shelves, only for products to quickly reappear after the two companies shook hands on a deal.

“This is a row that retailers and suppliers alike must learn from, particularly with tougher economic times and a further squeeze on consumer spending to come in the autumn”

Even if Heinz Beanz are back in bagging areas sooner rather than later, this is a row that retailers and suppliers alike must learn from, particularly with tougher economic times and a further squeeze on consumer spending to come in the autumn.  

It is understandable that tensions between retailers and major suppliers are mounting as they wrestle over who should bear the brunt of supply chain cost increases.

Both are seeking to protect margins and ensure their businesses are as fit as possible for a future likely to be shaped by further inflation and a brutal recession.

One supermarket executive suggested last week that, despite the myriad challenges facing grocery retailers right now, increased price demands from suppliers and the resulting negotiations represented “the single biggest headache” they are facing on a day-to-day basis as they try to shield hard-pressed shoppers from more food price inflation.   

After all, these aren’t the sort of price hikes that grocers, already operating on wafer-thin margins, can easily absorb.

Major suppliers are demanding increases as high as 35% for certain products – some, if not all, of which is being passed on to customers at a time when budgets are already being stretched to their limit.   

In many categories, grocers are concluding that retaining levels of choice is more important, giving shoppers the option of paying a higher price for Heinz products or trading down to own-label alternatives – lines on which retailers will enjoy healthier margins.  

A single 415g can of Heinz baked beans in Asda has risen from 90p to £1.20 in recent weeks, for instance. A 4 x 200g pack of Heinz Beanz Snap Pots has increased from £2.50 to £2.99 in Morrisons, while a 4 x 400g pack of Heinz Cream of Tomato Soup has gone from £2.50 to £3.50 in Sainsbury’s.   

Tesco executives have refused to take such a hit on baked beans, ketchup and salad cream and, in the cold light of day, who can blame them?

The margins of FMCG conglomerates like Kraft Heinz easily outstrip those of Tesco and its food retail rivals. Surely, then, it is only fair to expect supply goliaths to take on a fair share of a ballooning cost burden that is impacting everyone across the supply chain, from farm to fork? Tesco should be applauded for taking a stand. 

“Rather than being at loggerheads, now is the time for businesses spanning the value chain to ‘hold hands’ and support each other through this unprecedented period”

Yet, rather than opening a can of worms for similar public spats between retailers and suppliers – a scenario that some analysts fear – the Tesco-Heinz row must act as a catalyst for positive change and more empathetic dialogue across the retailer-supplier battle lines.

Rather than being at loggerheads, now is the time for businesses spanning the value chain to “hold hands”, as one industry source puts it, and support each other through this unprecedented period.   

Because let’s face it: whether you are in the Tesco corner, the Heinz corner or simply a customer who wants a bottle of ketchup, no one wins in the current stand-off.   

Tesco has lost access to a handful of core product lines that feature in a high proportion of baskets – something that competitors could capitalise on by wooing customers into their stores.

Heinz has lost huge volume, having disappeared from shelves and the website of Britain’s biggest grocer. And shoppers have lost the convenience of being able to get everything they need under one roof, forced to make an additional top-up shop elsewhere – or switch retailers entirely – to access certain Heinz products.  

Of course, Tesco is playing a clever game of chess from a PR perspective. The grocer will have likely benefited from headlines that further position it as a consumer champion, waging the war on behalf of the UK population against the £47bn US money-making machine.  

Tesco’s scale, with more than 3,600 UK stores and market share of 27.4%, according to latest Kantar data, affords it the ability to employ such aggressive tactics. But its next move will be crucial, not just for its own business, but in shaping the mood around retailer-supplier relations moving into the second half of 2022 and beyond.     

Supermarkets and suppliers worked brilliantly together during the Covid-19 pandemic to ensure that vulnerable shoppers were fed and the nation retained access to the key products and brands they needed to get them through the health crisis. 

Now is not the time to cast all of that hard work and goodwill aside and become embroiled in a public tug of war, but to harness it and ensure retailers and suppliers are pulling in the same direction.    

The people of the UK are, once again, counting on it.

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