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Why Heinz demanded an ‘unheard of’ 30pc price increase ... and Tesco balked

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heinz baked beans
heinz baked beans

The selection of beans on Tesco’s shelves are already noticeably limited. Visitors used to a sea of Heinz Beanz cans were instead met with gaping holes on Thursday. Online, notices of “this product’s currently out of stock” floated under many of Heinz’s best-known items.

While it may seem reminiscent of pre-lockdown panic buying, this time Tesco is not racing to re-stock Heinz goods.

On Wednesday, the two sides went head to head following Heinz’s decision to pause supply of its beans and ketchup to the grocer after a pricing dispute.

“We will not pass on unjustifiable price increases to our customers,” said Tesco, which is headed by chief executive Ken Murphy. “We’re sorry that this means some products aren’t available right now.”

Heinz countered that it was facing significant increases in commodity and production costs and wanted to provide goods at the right price “without compromising quality”.

The US company said it always sought to “provide value through price, size and packs.... at a price point that works within their budgets”.

The row has thrown the spotlight on the tricky relationship between suppliers and supermarkets: it comes six years after Unilever brands Marmite, PG Tips tea and Pot Noodles disappeared from shelves in a similar wrangling, and five years after Heineken brands were pulled. This time, inflation has sparked tension.

“Delistings are rare,” says Jefferies’ Martin Deboo. “More often than not, they materialise as a margin risk for the supplier, due to the retailer driving a hard bargain, rather than absence from the shelves.

“Bargaining power favours the retailer,” he adds, explaining that a company such as Heinz would rely more on sales from Tesco’s customers than vice versa.

However, the pressure will be mounting for a resolution on both sides. While more customers than ever are swapping to own-brand and value items, industry insiders say Heinz products are emblematic for supermarkets – key brands that sell well and draw customers to the likes of Tesco and Sainsbury’s, whose private label options are more limited than discounters such as Aldi.

baked beans heinz branston tesco - Paul Grover for the Telegraph
baked beans heinz branston tesco - Paul Grover for the Telegraph

According to insiders, this means the food manufacturer can be tougher on price demands. Heinz is understood to have asked for a more than 30pc price increase at some retailers, described by one industry insider as “unheard of”.

Retail data suggests prices of Heinz products have already risen. According to figures compiled for The Telegraph by Assosia, the average price of a 415g tin of Heinz Baked Beanz at supermarkets is up 22pc since the start of the year. Ketchup, meanwhile, has risen 17pc.

Increases at Tesco have so far not been as pronounced as elsewhere. The supermarket raised its price for baked beans from 85p to £1 last December – a hike of 17.6pc, according to the figures. Asda, however, increased theirs from 90p to £1.20 earlier this month – up 33.3pc – and Sainsbury’s from £1 to £1.20, or 20pc.

For ketchup, Morrisons raised its prices by the most – from £2 to £2.79 for a 460g squeezy bottle, in a 39.5pc increase.

The costs of rival brands have risen less sharply. Branston beans are up by an average of 6.7pc since last May, the data showed, and own-label ketchup is up just 6.3pc across retailers since last summer.

“In all fairness to Heinz, who knows what issues they've actually got?” says one canned foods importer, adding that their own costs have been rising in all areas. “There's just nothing that hasn't gone up substantially. Nothing.”

Tomatoes, which used to cost between €7 and €9 (£6 and £7.8) a case are now €15. Prices have gone up 25pc on beans.

Heinz last year cautioned over inflation “across the board”, saying it was struggling with a lack of truck drivers and soaring commodity prices.

Logistics for Heinz’s UK production could also pose a problem. It makes its Baked Beanz at a site in Kitt Green, Wigan, producing 3m cans per day. The UK consumes an average of 2.5m cans of its beans every day.

To make the final product, the company rehydrates imported beans from North America, before combining them with spices and tomato sauce to cook in the can. Relying on imports can lead to further costs amid surging fuel prices.

These challenges will be at the forefront of Heinz’s mind as it faces off against Tesco – a company which has positioned itself as a consumer champion in this battle. Some say the supermarket will ultimately have to give in.

“Here we go again,” says Ged Futter, a former senior Asda buyer. “Of course they will be passing it on… As a wise man once said 'you can't sell fresh air', it might be worth reminding a few of the retailers of this as they seem to have forgotten it.”

Even if a resolution is reached, there are signs the tussle between suppliers and retailers could run for some time. Other suppliers could soon follow and threaten to pull items if they cannot get the price they request.

Earlier this month, Mark White, the head of the grocery watchdog, said inflation had “affected the entire groceries sector as witnessed by the sheer scale of requests from suppliers to increase prices.”

Although he is not able to directly intervene in pricing talks – and can only take action if items are pulled without enough notice – White said he was “concerned that the pressure has impaired relationships and created wider problems”.

“My priority is to work with all the retailers to ensure they treat their suppliers fairly as they navigate the cost price process during this difficult time.”

According to the latest official figures, released this month, only 47pc of suppliers had not faced any code-related issues with retailers in 2022. Retailers have to abide by the code, which is enforced by an independent regulator and includes requirements such as giving suppliers enough notice if items are being taken off shelves.

Earlier this month the regulator said this suggested that “following two years of pandemic where retailers and suppliers worked closely together and improved their relationships, the pressure from rising prices has strained relationships”.

That strain is clearly playing in the dwindling baked bean cans on Tesco’s shelves.

“We are confident of a positive resolution with Tesco,” Heinz said this week.

Yet, for now, Tesco shoppers will have to get used to the fact it is no longer the case that ‘Beanz means Heinz’.