Stores, suppliers fight over price hikes as inflation squeezes

Long before shoppers fill up their carts with hot dogs or detergent, supermarkets and suppliers negotiate — and sometimes clash — over how much the products should cost.

Those delicate discussions spilled into public view this summer when Kraft Heinz proposed price hikes of as much as 30% on its foods in the United Kingdom, according to The Guardian, as people cope with rising costs for housing, energy and more. When British supermarket giant Tesco pushed back, it stopped getting shipments of Heinz products like ketchup and baked beans.

The two companies, which later struck a deal, did not respond to requests for comment.

A similar dynamic is heating up in the U.S., as retailers and consumer packaged goods companies get squeezed by higher costs for fuel, materials and labor. Companies have to walk a tightrope of keeping prices high enough to drive profits, yet low enough to hold onto customers. That can fuel tense discussions as retailers and their suppliers hash out how much of their extra costs to pass on to shoppers.

“It’s like buying a car,” said Olivia Tong, an analyst for equity research firm Raymond James who covers consumer packaged goods. “Normally, there’s some bit of negotiation. When it’s any major price move, there’s always going to be a little like, ‘Oh, no, that’s too much.’ And then you finally get to a happy medium where nobody’s happy.”

Inflation has climbed at the fastest pace in decades, hitting the grocery store particularly hard. Food prices have soared by 10.9% over the past 12 months as of July. Many everyday items have jumped far higher. The price of eggs is up 38%, coffee is up more than 20%, lunchmeat is up 18%, and peanut butter is up about 13% over the past year.

Beyond price hikes, manufacturers are scrambling to find ways to cut costs or boost profits in ways people won’t notice as much. For instance, suppliers can speed up manufacturing, load up each truck with more goods and shrink the size of a package, a practice known as “shrinkflation.”

Retailers are feeling the squeeze too. Walmart and Target have already cut their profit outlooks for the year. The retailers will shed light this week on how their businesses are faring when reporting their quarterly earnings. Walmart is among the companies that have taken a hard look at ways to improve profits and keep prices down.

In early July, Walmart CEO Doug McMillon told reporters that the retailer is talking to suppliers about finding “an innovative way to avoid cost increases,” such as changing packaging and placing orders earlier. But if that doesn’t work, he said Walmart has another lever it can pull: turning it into a competition.

“So we will say to a group of suppliers, ‘Here’s what we’re trying to achieve. Which one of…