U.K. Retail, Consumer Products Giants Scrap Over Brexit Price Rises
October 13 2016 - 11:50AM
Dow Jones News
LONDON—A big food fight just broke out in corporate Britain.
Late Wednesday, Tesco PLC, Britain's largest grocery chain,
removed from its online shopping site products made by Unilever
PLC, another British-based multinational, because the
consumer-goods maker insisted on higher prices.
On Thursday, Unilever confirmed the price hike, saying it had
asked most of its retailer customers in the U.K. for higher prices
to compensate for the fast-falling pound, which is down some 15%
since the June 23 Brexit vote. It didn't provide details, but
according to people familiar with the matter, it is insisting on a
10% price rise across its range of products.
The standoff pits two of Britain's business titans—and two of
the world's biggest companies—against each other in a high-profile
spat that was splashed across British papers on Thursday. The feud
was trending on social media as #marmitegate, for the dark, salty
spread called Marmite that has a cult following here and is made by
Unilever. (Unilever also makes Hellmann's mayonnaise, Dove soap and
Ben & Jerry's ice cream.)
Not only does Tesco dominate the British grocery sector, it is
one of the world's biggest retailers. Unilever, meanwhile, is the
world's second-largest consumer-goods maker, behind Procter &
Gamble Co. The Anglo-Dutch company occupies Unilever House, its
imposing neoclassic headquarters along the River Thames in central
London.
There is always considerable brinkmanship in negotiations
between suppliers and retailers—few places more so than in
Britain's ultracompetitive grocery business. Price wars in recent
years have pitted Tesco against a handful of smaller, national
chains as well as upstart deep-discount chains that have flourished
since the global economic downturn. The Unilever-Tesco standoff,
analysts say, could set the tone for how any future prices rises in
the U.K. are passed along across the rest of the industry.
"This isn't about Tesco or Unilever but about all U.K. retailers
and suppliers," said Bernstein analyst Bruno Monteyne.
Unilever, however, has picked a tough sparring partner in Tesco
Chief Executive Dave Lewis. He recently told reporters in London
that suppliers haven't historically cut prices when input costs
decline and he wasn't convinced they should be allowed to raise
them now.
He should know. Mr. Lewis once headed Unilever's personal-care
division and has spent years on the other side of the table in such
negotiations. He was widely seen as a possible successor to
Unilever CEO Paul Polman before he left for Tesco.
Mr. Lewis has previously dug in his heels in negotiations with
suppliers. Last year, Tesco removed Carlsberg products from most of
its stores as part of a product range review. It also temporarily
took Schweppes brands off shelves, after a falling out with owner
Coca-Cola European Partners, which licenses Schweppes in the U.K.
and wanted to raise prices.
Despite all the talk about Brexit, analysts have questioned
Unilever's timing on the price hike. It is boosting prices at a
time when it is suffering falling sales volume. Marmite, many have
pointed out Thursday, wouldn't appear to contain any foreign
ingredients. That raises questions about why Unilever would need to
raise prices on the product so steeply.
Unilever Chief Financial Officer Graeme Pitkethly told investors
that pricing decisions are delegated to local markets. The U.K.
makes up about 5% of Unilever sales.
On Tesco's side, Mr. Lewis's refusal to raise prices has been
interpreted by some industry insiders as a smart way to burnish
Tesco's reputation. The company has suffered in the public eye in
recent years after it hiked profit margins during the global
financial crisis. More recently, it delivered a number of profit
warnings and disclosed an accounting scandal. Under Mr. Lewis, it
has attempted to get back to basics, creating a line of
lower-priced products and painting itself as a company dedicated to
ordinary Britons.
Through a spokesman, Tesco has said only that it was
"experiencing availability issues on a number of Unilever products.
We hope to have this issue resolved soon." So far, Unilever
products are still on Tesco store shelves.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 13, 2016 11:35 ET (15:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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