The specifics in the complaint are that Pepsi keeps wholesale prices on its products high for every outlet but Walmart, and Walmart in return offers prominent placement in stores for Pepsi products. This approach internally is called a “price gap” strategy. It’s a partnership between two giants to exclude rivals by ensuring that Walmart has an advantage over smaller rivals in terms of what it charges consumers, and so that Pepsi maintains its dominance on store shelves.
This partnership comes in a number of forms. Pepsi offers allowances for Walmart, such as “Rollback” pricing, where specially priced soft drinks go into bins in highly visible parts of the store. The soft drink company gives Walmart “Save Even More” deals, online coupons and advertisements, and other merchandizing opportunities. Other outlets don’t get these same allowances, meaning they are charged higher prices.
While Pepsi is a “must-have” product for grocery stores, Walmart is also massively powerful. In its investment documents, Pepsi notes that Walmart is its largest customer, the the loss of which “would have a material adverse effect” on its business. Walmart is so dominant that the internal communication of the two companies would show a comparison of prices at Walmart versus “ROM,” or “rest of market,” meaning grocery, mass, club, drug, and dollar channels. It’s everyone in the world versus Walmart.
You can find price discrimination everywhere in the economy, from shipping to ad buying to pharmaceutical distribution to liquor sales. And the resulting consolidation and high prices is also pervasive.
LOL It seems US corporations do everything in their power to negate the “invisible hand” of capitalism.
In the years leading up to my retirement, and beyond, I reallocated my portfolio away from growth, and into income and capital preservation. As such, I’ve owned Pepsi for about 15 years now.
It’s been a solid investment and dividend aristocrat, but I’m becoming increasingly disenchanted with the franchise. I don’t consume their products and their recent shenanigans aren’t helping. Maybe it’s just a given that U.S. Corporations operate this way.
This seems incredibly unlikely, given that WalMart accounts for only about 14% of Pepsi sales. To follow this strategy they would have to “overprice” their product in 86% of other sales channels in order to gain favorable treatment from WalMart.
Now I have no doubt that WalMart uses it’s market power to coerce concessions from Pepsi - and yes, that includes pricing as well as other things: slotting allowances, promotional co-op programs and similar (as do Coke, Kraft, Kelloggs, and every other major supplier to grocery stores.)
But that is a far cry from Pepsi “agreeing to keep prices high everywhere else” (paraphrase), it’s using bulk discounts and other things to give Pepsi a better cost that some other outlet may enjoy. That’s more than just “words”, it’s wrapped up in a lot of legal stuff that governs corporate behavior, and I, for one, would be surprised if either Pepsi or WalMart were stupid enough to sign something that was patently illegal. (Then again I was surprised to find that VW had engineering a software fraud to improve their diesel emissions, so there’s that.)
(I would not be surprised to find that WalMart has a carefully crafts most-favored-nation clause in it’s contract with many suppliers, but that is different than requiring them to have higher prices everywhere else.)