By Jesse Newman, Jaewon Kang and Annie Gasparro
Friction between food retailers and their suppliers is adding
costs across the food chain.
Big buyers including Walmart Inc. and Sysco Corp. are fining
suppliers over infractions like late or incomplete orders.
Retailers excused such penalties for months during the pandemic
when surging demand led to widespread shortages.
Meanwhile, many food makers and distributors say labor
shortages, supply constraints and high freight costs are making it
difficult to deliver complete, timely orders for goods from cake
mix to ramen noodles. Similar tensions are mounting throughout the
U.S. economy, as industries contend with shortages of supplies and
complications of reopening businesses in the wake of the
coronavirus pandemic. Prices for many foods, consumer products and
other goods are rising as a result.
"The supply-chain challenges are still there," said Henk
Hartong, chief executive officer of Brynwood Partners, which owns
Hometown Food Co., the maker of Pillsbury cake mixes and Buitoni
pasta. He said wheat costs have soared and shipments for
ingredients including vitamin C for Sunny D are running behind:
"It's not just one thing, it's everything."
Walmart told suppliers last fall that it would require orders to
be 98% full and on time. Suppliers that didn't comply would be
charged 3% of the cost of missing items, according to a September
letter from the retail giant viewed by The Wall Street Journal.
"We must improve product availability," Walmart's letter said.
Spokeswoman Tara House said Walmart wants to save customers time
and money by having the products they want online and in
Food-distributor Sysco in February alerted suppliers to fees it
would begin assessing in April for partial orders, billing
discrepancies and missing data such as nutritional information,
according to correspondence viewed by the Journal. Fees went into
effect in April. Sysco also told suppliers it expects them to put
its orders ahead of those from other customers.
"We believe all our supplier partners subject to these policies
have the capabilities to meet them," Sysco spokeswoman Shannon
Mutschler said, adding that this will help restaurant customers as
The shift in tone comes as companies are trying to get back to
business as usual amid a reopening economy. Restaurants are adding
back more seats in dining rooms, grocers are resuming service at
salad and hot-food bars, and companies are bringing back more
people to the office.
Retailers including Boise, Idaho-based Albertsons Cos. said they
are struggling to secure some goods such as spices and cleaning
products like detergent. Albertsons, which operates supermarket
chains including Safeway and Jewel-Osco, has brought back fees in
some categories, CEO Vivek Sankaran said.
"It's about providing suppliers with better demand signals and
making things simpler," Mr. Sankaran said.
While the fees are common among retailers, they are raising
costs for suppliers on top of higher prices for fuel, transport,
labor and some raw materials. Manufacturers are already raising
prices for a range of food and other consumer products. "Almost
everything is going up," said Jagtar Nijjar, director of imports
and commodities at distributor Gordon Food Service Inc.
Wise Pies is paying as much as $4,000 to ship a load of its
pizzas, President Season Elliott said, compared with around $1,800
in August. Cheese prices have also almost doubled. Wise Pies is
using more contractors to make and deliver some of its pizzas,
which hurt profit but helped meet demand from distributors and
retailers. The company hasn't raised prices.
"We all want the same thing: to avoid out-of-stocks," Ms.
Thang Nguyen-Le, CEO of ramen-noodle brand Simply Food, said he
is facing fines for delays and worries retailers could switch to
competitors if he can't deliver. He is paying for refrigerated
shipping containers and air shipments, though his products don't
"We've got to keep up shelf space even if it's at a loss," he
Utah-based distributor Nicholas and Co. was struggling to source
milk and cream, so Nicole Mouskondis, the company's co-CEO, tried
to arrange to buy milk from a dairy farmer with excess supplies.
But a shortage of resin after winter storms closed chemical plants
in the Southern U.S. left milk processors unable to procure the
plastic jugs needed to bottle it.
"There's a domino effect," said Ms. Mouskondis, whose company
supplies restaurants including Subway and Panda Express.
Many restaurants haven't paid for some orders placed before the
pandemic as they request more food to reopen. Distributors
including Ms. Mouskondis have put some restaurants on payment
plans. "You can't repossess lettuce," she said.
Some restaurant chains have told distributors they could be
fined for late deliveries, Ms. Mouskondis said, and some have
replaced longtime suppliers with competitors that say they can
procure the goods they need.
Suzanne Rajczi, CEO of New York-based distributor Ginsberg's
Foods, said she is over-ordering many goods to improve her chances
of having products her customers request. She is struggling to
source blue cheese, for example, because cheese makers last year
reduced inventories of varieties like Gorgonzola and Roquefort,
which take months to age.
"I can't make blue cheese any quicker," Ms. Rajczi said.
Write to Jesse Newman at firstname.lastname@example.org, Jaewon Kang at
email@example.com and Annie Gasparro at
(END) Dow Jones Newswires
May 07, 2021 15:17 ET (19:17 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.