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Dow Jones reports on increased tensions between some food retailers and manufacturers, as the retailers seek price decreases and the suppliers try to maintain recent price increases and instead offer more trade dollars, coupons and two-for-one deals.

The “negotiations highlight how retailers are looking to their vendors for help in getting lower prices for their customers, who have less money to spend amid a deepening economic crisis and growing unemployment.”

The story continues, “Grocers like Supervalu and Safeway Inc. are looking to move away from promotional pricing and offer lower everyday prices to improve their price perception and to better compete with low-cost food retailers like Kroger Co. and Wal-Mart Stores Inc. The gridlock over lower prices could slow plans by those grocers to realize their new strategies, analysts say.”

While most manufacturers haven’t yet lowered their prices, “as the economic downturn draws out and consumers continue to feel pinched, food makers that hold on to their higher prices may lose more of the market share to private-label products, even in some categories like cereal, where market share for brand-name products remains strong.”

KC's View:
At some level, isn’t reduced trade spending and fewer promotional allowances exactly what a lot of manufacturers have been arguing for over the years, while many retailers were unable to wean themselves off such funds?

Lowered food prices seem inevitable to me, especially as the recession spreads and deepens. (The announcement yesterday that Microsoft for the first time will lay off 5,000 people seems to be a widely accepted signal that this thing is going to get a lot worse and last a lot longer than most people hoped or expected.) So maybe manufacturers can actually use the moment to their advantage, and shift into a different economic mode that will depend less on things like slotting allowances and create a better foundation on which to build long-term.