UL Unilever PLC

By Saabira Chaudhuri 

LONDON -- Consumer-products giant Unilever PLC is raising its U.K. prices for everything from mayonnaise to shampoo after months of discreet increases amid a Brexit-triggered currency rout that is threatening Britons' buying power.

The Anglo-Dutch giant said on Thursday it is asking its top grocery retailers here for price increases on its products, which include household names such as Hellmann's mayonnaise, Dove soap and Ben & Jerry's ice cream. It also makes Marmite, a popular brown, salty spread with a cult following. It cited rising commodity costs in dollars, which -- coupled with the sharp decline in the pound -- have raised the cost of imported ingredients.

"The price increases have landed," said Unilever finance chief Graeme Pitkethly on a call with analysts. Unilever, the world's second-largest consumer goods maker after Procter & Gamble Co., didn't detail its pricing demands, but people familiar with the discussions said it is asking for hikes of 10% on average, according to people familiar with the matter.

The demand set the stage for a brief public standoff with Tesco PLC, Britain's biggest grocer. Tesco on Wednesday pulled Unilever brands from its website after refusing to accept the demand for higher prices.

Late Thursday, though, Tesco and Unilever issued statements saying they had resolved the pricing dispute, without giving details. Analysts and industry insiders said they expect Unilever got at least some of the higher prices it was asking for, given the sharp drop in the pound and how the industry typically operates in such currency moves.

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 hasn't yet reached a resolution with Unilever, according to this person.

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

That has triggered a tourism boom, as visitors enjoy cheaper hotel stays and shopping. British exporters also have gained as their goods are more competitive overseas. U.K.-based multinationals benefit from higher revenue as overseas sales are converted into sterling.

But for importers, the fall of the pound is painful. Changes in exchange rates affect input prices almost immediately. The cost of imported materials for businesses rose by 9.3% in August compared with a year earlier. Such changes take time to filter through to consumers. Consumer prices increased less than 1% in the period.

Still, for many U.K. residents, Sterling's fall is already causing discomfort. Overseas vacations are more expensive, keeping more 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 mostly involved discretionary purchases. With Unilever's latest move, the prospect of higher prices for staples suddenly looms larger. Sanford C. Bernstein & Co. equity 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 European Union. 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."

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

Still, what Unilever does matters. It commands significant market share in a number of consumer-product sectors in Britain. It enjoys a 37% share of Britain's ice cream market, for instance, and 21% of its table sauce market, according to market researcher Euromonitor International.

Some analysts questioned the timing of Unilever's move. Brexit and the weak pound aside, it comes as the company struggles with lifting sales volume globally. On Thursday, Unilever 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 a 5.7% gain in the same period a year earlier. The price increases the company has pushed through so far "are substantially less than we would need to cover the impact on our own profitability," Mr. Pitkethly, the finance chief, said. He said U.K. sales make up about 5% of Unilever global sales.

He said Unilever has incurred EUR600 million ($662 million) in higher costs this year tied to currency devaluation, excluding the effect from the pound's decline against other currencies. 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.

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

(END) Dow Jones Newswires

October 13, 2016 15:05 ET (19:05 GMT)

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