By Saabira Chaudhuri 

LONDON--Consumer giant Unilever PLC is raising U.K. prices for products ranging from mayonnaise to shampoo, after months of more-discreet price rises amid a Brexit-triggered currency rout that is now threatening ordinary Britons' buying power.

Unilever is asking its biggest grocery-store customers here for price increases of 10% on average, according to people familiar with the matter. That demand set the stage for an unusual public standoff with Tesco PLC, Britain's biggest grocer. Tesco, which is also one of the world's largest retailers, late Wednesday started taking Unilever products off its website after refusing to pay the higher prices, though they are still on its store shelves for now.

Unilever confirmed Thursday it had asked most of its retailer customers for higher prices for its goods, which include household names such as Hellmann's mayonnaise, Dove soap and Ben & Jerry's ice cream. It also makes Marmite, a dark and salty spread popular here. It cited rising commodity costs in dollars, which--coupled with the sharp decline in the pound--have raised the cost of imported ingredients. The Anglo-Dutch company, the world's second-largest consumer goods maker after Procter & Gamble Co., didn't detail its price demands.

"The price increases have landed," said Unilever Chief Financial Officer Graeme Pitkethly on a call with analysts Thursday.

It was unclear whether those price rises have already been passed along to consumers in Britain's ultracompetitive grocery market--or whether they ever will be. The U.K.'s biggest national chains have engaged in costly price wars for years, fighting each other and a new band of ultra-low-price discounters for market share. If other big consumer-goods producers, such as P&G and Mondelez International Inc., don't follow suit, shoppers would enjoy plenty of options for switching brands to keep budgets in check.

Still, Unilever has considerable pricing power here. It commands a 37% share of Britain's ice cream market, for instance, and 21% of its table sauce market, according to Euromonitor. Data from U.K. grocery price-tracking website MySupermarket shows major retailers have raised prices on some Unilever products in recent days but lowered them on others.

The price increase and Unilever's spat with Tesco--splashed across the front pages of British newspapers Thursday and trending online as "#Marmitegate"--put the economic stakes of Brexit for everyday Britons in suddenly high relief. With so many of the details of London's planned split with the European Union still subject to years of negotiations, the biggest impact felt so far by companies and consumers has been the pound's steep descent. The pound is down roughly 15% since the June 23 Brexit vote.

That has triggered a tourist boom here, with visitors taking advantage of cheaper hotel accommodation and shopping. Many British exporters have also gained, as their goods are now more competitive overseas. Many big U.K.-based multinationals are also benefiting from higher revenue, as their overseas sales are converted back into sterling.

But for importers, the fall of the pound has caused pain. Changes in exchange rates affect input prices almost immediately. Imported materials for businesses rose in price by 9.3% in August compared with a year earlier. Such changes take longer to filter through to consumers. Consumer prices increased just 0.6% in the period.

Still, for many U.K. residents, sterling's fall is already causing discomfort. Overseas vacations are much more expensive, keeping many Britons at home. Retail prices of many imported goods, such as electronic devices, wine and cars, have been ticking higher for weeks.

Those increases so far have centered mostly around discretionary items. With Unilever's latest move, the prospect of higher prices for staples suddenly looms larger. Bernstein analyst Bruno Monteyne said the Unilever-Tesco dispute presaged "inevitable Brexit-induced price inflation."

Last month, the Bank of England noted that retailers were "very cautious about any increases in prices, given that consumers remained highly price sensitive, and so the extent and timing of pass-through would largely depend on competitors' actions, particularly in food retail."

David Dines, a 56-year-old soccer coach voted in June to remain in the EU. Outside a Tesco store in south central London, tossing an avocado he just bought, he said the prospect of price fluctuations is "the consequence of Brexit, isn't it? It's inevitable."

Unilever disclosed the price changes as it navigates tough market conditions around the world. On Thursday it posted third-quarter sales growth on an underlying basis--which strips out the impact of acquisitions, disposals and exchange-rate changes--of 3.2%, down from 5.7% growth in the same period a year earlier. The price rises the company has pushed through so far "are substantially less than we would need to cover the impact on our own profitability," Chief Financial Officer Graeme Pitkethly said.

He said Unilever has seen a EUR600 million ($662 million) increase in costs this year tied to currency devaluation, excluding the effect from the pound. Unilever's hedging arrangements typically protect it between four and six months out, however, and the company may start seeing the effect of higher sterling costs later this month.

In publicly rejecting the Unilever increases so far, Tesco enters negotiations that could set the tone for how any future price rises are passed along in Britain across the rest of the industry. Tesco Chief Executive Dave Lewis is a former Unilever executive.

Through a spokesman Tesco said only that it was "experiencing availability issues on a number of Unilever products. We hope to have this issue resolved soon."

Unilever also approached J Sainsbury PLC and other British supermarkets about raising prices by around 10% on average, according to a person familiar with those conversations. Sainsbury is still in talks with Unilever.

Stu Woo and Mike Bird in London contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

 

(END) Dow Jones Newswires

October 13, 2016 10:21 ET (14:21 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
Unilever (NYSE:UL)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Unilever Charts.
Unilever (NYSE:UL)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Unilever Charts.