Business Week reports that grocers are warning they will fight food manufacturers who raised prices last year in the face of commodity price increases, but have not lowered them as the commodity prices have declined recently.
Manufacturers respond that their price increases were not excessive in light of the cost increases they had previously absorbed. This graph offers some support, showing that producer prices increased more than consumer prices for the seven quarters preceding Q4 '08.
Nonetheless, retailers are threatening increases in private label and possibly dumping uncooperative suppliers. SuperValu's CEO noted that "In almost every category, you have other vendors to look to."
It appears that suppliers may be trying to compensate for the increases by bumping up their trade spend:
But analysts say they're already seeing an increase in so-called promotional dollars, or money that vendors give to retailers to subsidize temporary discounts like two-for-one offers.The Cincinnati Enquirer carried a similar article, noting that Walmart is talking tough:
"We worked with them when raw-material costs rose," said John Simley, a Wal-Mart spokesman. "Now that they've dropped, we want to see prices come back down. Our suppliers know we are the advocate of the consumer."