Recession & Buyer-Supplier Relationship

An article published on February
11, 2009 in Wall Street Journal reported that a grocery chain has removed from
its Belgian stores about 300 Unilever products that it says are priced too
high, a sign of mounting tension between retailers and suppliers as the
recession grinds on.

The stare-down shows how fraught
relations between retailers and their suppliers are becoming amid the severe
slump in consumer spending. Grocery stores across the globe are putting growing
pressure on food and drink companies to lower prices or to offer other more
favorable terms.

The move by Brussels-based Delhaize SA, which operates the
Food Lion chain and other grocery stores in the U.S., comes just days after
Unilever reported strong fourth-quarter profit that was driven in large part by
its ability to command big price increases despite the ailing economy.

Delhaize says its conflict with Unilever is rooted in the supplier's effort to
push a broad range of goods into its stores, including some that the grocer
says it would prefer not to stock because they are unpopular. If the
supermarket doesn't buy the whole range of products, Delhaize says, Unilever
has threatened to raise prices by an average of 30% for the remaining items.

"They want to impose their product assortment on us," says Lisbeth
Rogiers, a spokeswoman for Delhaize, which operates more than 2,500 stores in
five countries, including more than 1,500 in the U.S. "That is unacceptable
for our customers, and we always put our customers at the center of our
decisions."

Unilever wants Delhaize to promise it won't stop selling Unilever products
without consulting the company first, Unilever spokeswoman Aurélie Gerth says.
The Anglo-Dutch consumer-goods giant wants to increase prices for Delhaize by
an average 2.5%, she adds.

Deborah Weinswig, an analyst for Citi Investment Research, believes
Wal-Mart's plans to freshen up its Great Value brand will trigger more price
cutting on the national brands sold at Wal-Mart. And if Wal-Mart reduces its
national-brand prices, "I think the food retailers will have to follow or
they will be at risk of losing market share," she says.

In January 2009, mid-Atlantic grocer Weis Markets, which operates 155 stores,
lowered or froze prices on 2,400 targeted staple items. Similarly,Terry Leahy, the chief executive of British retailer Tesco
PLC, urged suppliers to pass on to stores the recent drops in commodity and oil
prices.

Source: Rohwedder, Cecilie and Patrick, Aaron O.
and Marting, Timothy,  “Big Grocer Pulls
Unilever Items Over Pricing” Wall Street
Journal, February 11, 2009.