# Suppliers with teeth: when ingredient and packaging makers call the shots
In 2022, palm oil prices spiked so hard after Indonesia briefly banned exports that Unilever, Nestle, and Mondelez all cited it as a direct hit to gross margins in their earnings calls. Around the same time, beverage makers from CocaCocaCustomer Acquisition Cost: total sales and marketing spend divided by the number of new customers acquired over the same period.View full definition →-Cola bottlers to craft brewers were scrambling to lock in aluminum can supply, paying premiums and signing multi-year contracts just to guarantee they'd have something to put their product in. Two very different ingredients, one common lesson: sometimes the supplier, not the brand, holds the leverage.
This lesson looks at when and why that happens in FMCG (fast-moving consumer goods, the industry term for low-cost, frequently purchased products like food, drinks, and household items).
In most FMCG textbook narratives, the power sits with the branded manufacturer. Unilever, Procter & Gamble, Nestle, PepsiCo: these companies are seen as price-makers because they have brand equitybrand equityThe commercial value your brand adds beyond functional product attributes: the price premium, preference and loyalty it generates.View full definition →, shelf presence, and scale. Suppliers of raw materials and packaging are treated as commodity vendors who compete on price and get squeezed.
This is often true. A company sourcing generic corn syrup or standard corrugated cardboard has many suppliers to choose from and can switch easily. Classic supplier bargaining power theory (from Michael Porter's Five Forces framework, a standard tool for analyzing industry competition) says suppliers gain power when:
Most of the time in FMCG, none of these apply strongly to commodity inputs. But every so often, they all click into place at once.
Palm oil is in roughly half of packaged supermarket products, from soap to margarine to instant noodles, because it's cheap, stable, and versatile. But its production is geographically concentrated: Indonesia and Malaysia together produce over 80% of global supply (estimate, commonly cited figure as of the early 2020s).
That concentration is the vulnerability. When Indonesia imposed an export ban in 2022 to manage domestic cooking oil shortages, global buyers had almost nowhere else to go in the short term. Prices spiked sharply within weeks.
For a company like Unilever, palm oil and its derivatives aren't a minor line item, they're structural to dozens of product lines. Switching to alternative oils means reformulating products, which takes months of R&D and regulatory approval, not days. That reformulation cost is exactly the kind of switching cost that hands suppliers (in this case, an entire producing region) leverage.
The Roundtable on Sustainable Palm Oil (RSPO) emerged partly from this dynamic: large buyers tried to organize collectively to stabilize supply chains and improve traceability, a sign of how seriously the concentration risk is taken.
Aluminum can supply tightened significantly in 2020 and 2021. Demand surged as consumers shifted to at-home consumption during the COVID-19 pandemic, canned cocktails and sparkling water boomed, and can manufacturing capacity hadn't kept pace.
Only a handful of major players dominate can-making globally: Crown Holdings, Ball Corporation, and Ardagh Group are the biggest names in North America and Europe. When demand outstrips their capacity, beverage brands, even ones with major bargaining weight like PepsiCo, found themselves negotiating for allocation, not just price.
Smaller beverage brands and craft producers were hit hardest. Larger players could sign long-term supply agreements or even invest directly in can-making capacity to secure priority access; smaller challengers often couldn't.
This illustrates a second lever of supplier power: capacity constraints in concentrated industries. It doesn't require a single supplier monopoly, just too few players relative to sudden demand.
Cocoa offers a longer-running example. Roughly 60 to 70% of global cocoa comes from just two countries, Ivory Coast and Ghana (estimate, widely cited industry figure). Unlike palm oil, cocoa's supply problems are chronic rather than a one-off shock: aging tree stock, climate stress, and underinvestment in farming have kept structural volatility high.
In 2023 to 2024, cocoa prices roughly tripled from prior years, a move widely covered in financial press and attributed to poor harvests in West Africa combined with fixed short-term global supply. Chocolate makers like Hershey, Mondelez, and Nestle absorbed higher input costs or passed them to consumers through smaller pack sizes, a practice commonly called "shrinkflation" (reducing product quantity while holding price steady).
Cocoa shows that supplier power isn't only about shocks. It can be structural and persistent when growing regions are geographically locked and production can't scale quickly to meet demand.
Powerful FMCG brands don't just accept supplier leverage passively. Common defensive strategies include:
None of these fully neutralize supplier power. They shift the balance back toward equilibrium rather than reversing it entirely.
Knowledge check
1. According to the default FMCG power narrative, why are branded manufacturers like Unilever or PepsiCo typically seen as price-makers relative to their suppliers?
2. Why does palm oil represent an exception to the usual assumption that FMCG brands hold the power over commodity suppliers?
3. A beverage company signs a multi-year contract at a premium price to guarantee aluminum can supply. Using Porter's Five Forces logic, which condition best explains why the aluminum suppliers had leverage in this situation?
4. Select ALL correct answers describing conditions under which, per Porter's Five Forces framework, suppliers gain bargaining power over buyers.
Select all the correct answers.
5. Select ALL correct answers that explain why commodity raw material suppliers (like generic corn syrup or standard cardboard suppliers) usually lack bargaining power against large FMCG brands.
Select all the correct answers.
For anyone analyzing an FMCG company, from an investor to a strategy consultant, a few practical signals suggest supplier power is rising:
1. Geographic concentration of raw material sourcing. If one or two countries produce the vast majority of an input, treat that as latent risk even in calm years.
2. Rising switching costs. If reformulation, recertification, or requalifying a new packaging supplier takes many months, that's leverage sitting with the incumbent supplier.
3. Thin supplier base in packaging or specialty ingredients. Fewer than five credible global suppliers for a critical input is a red flag.
4. Demand shocks hitting fixed-capacity industries. Aluminum, glass, and specialty chemical production can't scale instantly; sudden demand spikes reveal where real bottlenecks sit.
A simple gross margingross marginGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.View full definition → sensitivity view helps make this concrete. Suppose an FMCG snack brand spends 15% of cost of goods sold on palm oil, and the input price rises 40% during a shock (roughly in line with what happened in 2022, as an illustrative estimate). If the company can't pass any cost through to retail price, that alone reduces by about 6 percentage points (15% x 40% = 6%). That's a large swing for a category where gross margins often sit in the 30 to 50% range (estimate, varies widely by segment), and it explains why commodity cost shocks get flagged prominently in quarterly earnings calls.
🎬 [VIDEO: "How Cocoa Prices Exploded" - https://www.youtube.com/results?search_query=how+cocoa+prices+exploded - a good visual explainer on how concentrated growing regions and weather shocks translated into a historic commodity price spike, illustrating structural supplier leverage in real time]
For deeper background on how supplier concentration is tracked at a policy level, the FAO's Food Outlook reports provide free, regularly updated data on global commodity production concentration.