Kraft has the secret sauce in the food fight of British stores

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Kraft has the secret sauce in the food fight of British stores
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The US company’s margins make it a target for consumers and politicians trying to curb rising costs of living.

Supermarket chains like Britain’s Tesco are recalling Kraft Heinz favorites like ketchup and canned vegetables because of “unjustifiable” price hikes. The US company’s margins, valued at $47 billion, make it a target for consumers and politicians trying to curb rising costs of living. However, by reducing its supply, Tesco could be losing ground to Amazon.com and to cut-price rivals such as Lidl and Aldi.

Along with Tesco, Kraft Heinz is a food Goliath. Its market value is double that of the UK’s leading supermarket and its operating margin, at 20%, is five times higher. Presumably T-esco CEO Ken Murphy thinks these numbers make the supplier vulnerable. In a debate over who can take the pain of inflation longer, there is little discussion. To prove it, Murphy has stopped selling 16 Heinz products that he considers too expensive. Supermarket chains can also fill the gap with their own private labels. If Kraft refuses to back down, Tesco could end up selling more of its own products.

The consumer giants still have reason to resist. About half of the products sold by Tesco and its peers are from big brands like Coca-Cola or Nestle, according to analysts at Shore Capital. The supermarket’s 27% share in the UK is based on its ability to sell a wide range of products at low prices. If Kraft refuses to budge and Tesco enters similar disputes with other giants, its shelves will quickly fill with little more than its own cheap brands. This will make it look suspiciously like its discount rivals Aldi and Lidl, whose shelves contain only 10%-15% more expensive international brands from Unilever, Kraft and the like. The German duo have already increased their combined market share by almost 3 percentage points this year, to 16%. This makes Tesco’s price gesture riskier than it sounds.

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