By Richa Naidu

LONDON (Reuters) – European retailers are locked in extended price negotiations with giant food companies – including the world’s biggest, Nestle – as they fight to retain shoppers and protect their profits.

Major consumer products companies across the world have announced plans to boost prices at a faster pace than last year as they too seek to curb the impact of soaring raw materials costs on their margins.

European Central Bank President Christine Lagarde early this month flagged rising food prices as a significant contributor to January’s unexpectedly high overall inflation in Europe, which she said caught the ECB off-guard.

Ahold Delhaize – the owner of more than 20 retail brands including Albert Heijn in the Netherlands and Stop & Shop in the United States – told Reuters on Wednesday it had kept underlying operating margins stable at 4.4%, in part, by negotiating prices.

The company’s Albert Heijn chain – the largest Dutch supermarket – earlier this year removed Nestle products, including Maggi, KitKat and Nescafe from its stores because Nestle increased prices.

“We did have some tough negotiations with Nestle…it was a place where we said we just don’t take prices if they’re not acceptable proposals,” Ahold finance chief Natalie Knight said in an interview, adding the supermarket had reached a “good conclusion” with Nestle.

“I think we’ve been very successful, so far, in making sure only the most necessary costs are passed onto customers,” Knight said.

Knight, and also industry experts, said negotiations were taking longer than usual because of the complexity of factors.

Consumer goods companies typically agree annual pricing contracts with retailers towards the end of each year in many parts of Europe. Four industry experts told Reuters that, in many cases, negotiations have stretched into 2022, or have been re-opened after having in theory been concluded.

A spokesperson for Nestle said the pressures included more expensive raw materials, packaging, energy, logistics, and labour. The impact has eroded Nestle’s margins. On Thursday it reported a 30 basis point decline in its full-year underlying trading operating profit margin to 17.4%.

Nestle said it raised overall prices by 3.1% in the fourth quarter, and by 2.5% in Europe, the Middle East and North Africa. The company increased quarterly prices by 5.2% in the Americas.

When asked if Nestle had found it difficult to raise prices quickly, CEO Mark Schneider said the way contracts were structured meant there were “certain dates where you can reset prices”.

Belgian low-cost supermarket chain Colruyt told Reuters it was among those still in talks with some food makers.

“Pressure in the sector is high, but we are not giving up on our lowest price guarantee. If that means that our profit margins may come under pressure for one, two or more quarters, then so be it,” a Colruyt spokesperson told Reuters.

As negotiations dragged on, the chain late last year removed 400-gram jars of Italy’s Ferrero Spa’s Nutella hazelnut spread from some of its stores, choosing to stock only large jars that were better value for families with kids, the supermarket’s main customers.

Ferrero said is did not want to speculate about future price developments.


For shoppers across the euro zone, the issue is how quickly and by how much prices for everyday staples will rise.

Overall euro zone inflation hit a record of 5.1% in January, well above the ECB’s projections. Food, alcohol and tobacco inflation rose to 3.6% from 3%.

The battle between packaged food makers and retailers will only do so much to counter that. The processed food component of food inflation makes up very little of the overall consumer price index that is largely driven by rising energy prices across sectors.

In the autumn, several packaged food companies hiked European prices for some products by 5%-7%, financial advisory firm Rabobank estimated.

Cyrille Filott, head of Rabobank’s consumer foods team, said some food makers had later demanded a further 3%-5% increase as commodity prices continued to rise.

“There’s a big fight right now in continental Europe between retailers and food companies,” Filott said.

Unilever finance chief Graeme Pitkethly said the company, whose brands include Knorr seasonings and Magnum ice cream, has had to limit the number of promotions in Europe as an “extremely difficult” pricing environment in parts of the region has kept it from raising prices to the degree it has elsewhere in the world.

German members-only wholesale retailer Metro cited a roughly 5% increase in food inflation, some of which will be passed on.

Its CFO Christian Baier told the media last week his company is “able to hand over relevant parts of the price increases to our customers”.

France, meanwhile, was named as “a key area of pricing challenge” by Unilever on its results day last week.

French supermarket major Carrefour SA said it was seeing price inflation in the low to mid-single digits, similar to the 3%-5% that its rivals have noted.

“We have many advantages in negotiations with suppliers due to our market share and due to the dynamics of our revenues,” Chief Executive Alexandre Bompard said on a post-earnings call on Thursday.

The company’s finance chief had said in October that Carrefour was “planning to be very aggressive” as it entered price negotiations, and that suppliers demands would be rejected.

(Reporting by Richa Naidu. Additional reporting by Anthony Deutsch in Amsterdam, Matthias Inverardi in Dusseldorf, Silke Koltrowitz in Zurich and Francesca Landini in Milan; Editing by Vanessa O’Connell and Barbara Lewis)