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The economic headlines in Europe have been glowing recently: Inflation, according to official statistics, is finally coming down. But tell that to consumers still facing runaway prices when they head to the supermarket.
On Thursday, France’s biggest food retailer, took a drastic step to confront the situation, announcing that it would no longer sell PepsiCo products because the prices were “unacceptably” high for consumers, escalating a showdown by French retailers to name and shame brands that aren’t lowering prices as inflation eases.
Carrefour, a global retail giant, put up posters Thursday throughout its 3,440 supermarkets in France where Lay’s potato chips, Pepsi and 7-Up soft drinks, as well as Doritos, Quaker cereals and other PepsiCo products are typically displayed. “We are no longer selling this brand due to an unacceptable price increase,” the signs said. PepsiCo did not immediately respond to a request for comment.
The move was the latest broadside — encouraged by the French government — to try to strong-arm manufacturers to lower food costs that have continued to buffet families despite a broad slowdown in price increases across Europe.
Part of that campaign includes identifying brands that also engage in the practice of shrinkflation, in which manufacturers downsize food packages while maintaining or raising the price.
Inflation in the eurozone fell to a new two-year low in November, dropping much faster than expected as a result of an aggressive campaign of interest rate increases by the European Central Bank and efforts by European countries to ease prices for energy and food. In France, inflation rose at an annual rate of 3.7 percent in December, down a third from a year earlier.
But food price inflation is especially persistent. A typical basket of food basics in France, from pasta to yogurt, is still 7 percent higher than it was a year ago.
Some manufacturers have justified those costs by arguing that profit margins in Europe are below average because the costs of inputs are particularly high. Unilever’s chief financial officer, Graeme Pitkethly, told analysts in October that “the extent of price increases, whilst historically high, has still not been enough to cover the cost inflation that we have experienced.”
France, which is Europe’s biggest market for groceries by supermarket sales, has been pressuring manufacturers and retailers for over a year to force prices down.
President Emmanuel Macron has said that he wants to see food prices come down by at least 5 percent, to reflect an overall decline in raw material costs that has started to emerge following over a year of record-high prices resulting in large part from Russia’s invasion of Ukraine.
In November, he demanded that a deadline for once-a-year price negotiations between French retailers and manufacturers be moved up two months, to the end of January, to bring quicker relief for shoppers. France also recently submitted a proposal to the European Union that would force food retailers to carry out a shrinkflation labeling campaign. Carrefour has started marking its shelves with signs detailing the degree of shrinkage and how much consumers were getting gouged on prices.
“We have large companies that are jacking up the prices of some of their brands, and we want to get them around the table again and achieve price decreases as quickly as possible,” Mr. Macron said. “It is intolerable to see so many households having to make choices about essential goods.”
Many global consumer goods companies have raised prices by double-digit percentages in the past year. They have often attributed the increases to higher costs of ingredients and labor. At the same time, many of those companies have reported expanding profits as they sell fewer items at higher prices.
In recent months, companies have reported that shoppers are more weighed down by inflation and high interest rates. Companies that sell consumer goods, including PepsiCo, have reported noticing customers tighten their purse strings.
“I do think that we see the consumer right now being more selective,” Hugh Johnston, chief financial officer of PepsiCo, told analysts in an October earnings call. “You see some orientation toward value.”
Retailers are eager to see prices come down. Executives at Walmart, the largest U.S. retailer, welcomed the moderating prices of general merchandise leading into the holiday season, but worried about stubbornly high food prices.
“The pockets of disinflation we are seeing are helping, but we’d like to see more, faster, especially in the dry grocery and consumables categories,” Doug McMillon, chief executive of Walmart, told analysts in November.
The move in France comes amid broader momentum in Europe to tackle a cost-of-living crisis that has persisted even as the economy flags. While the U.S. economy has been expanding, Europe has been moving along a very different path: a drawn-out economic slowdown burdened by a double dose of high interest rates and the lingering impact of the energy crisis set off by Russia’s war in Ukraine.
In Italy, the government has sought to pressure retailers and manufacturers to reduce food prices. The Greek government has started requiring supermarkets to report the prices being charged for basic foods.
Other big French supermarket chains said they might follow suit. “It’s not over,” Michel-Edouard Leclerc, the president of Leclerc, a major food retailer, said in an interview on French radio Tuesday. He added that many food manufacturers were still asking for price increases of 6 to 8 percent.
J. Edward Moreno contributed reporting from New York.
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