Marmite, PG Tips tea and Pot Noodles are among dozens of brands currently unavailable on Tesco's online site due to a dispute with Unilever. Unilever has confirmed it is raising prices in the UK to compensate for the sharp drop in the pound's value. Tesco is resisting the move and has removed Unilever products from its website.
Two of our experts analyse the situation:
Tesco is keen to regain its market position which implies competing strongly on prices relative to firms like Aldi and Lidl.
Unilever's finance chief said such price increases are a "normal" reaction to shifts in currency values.Unilever owns many powerful brands which the more traditional supermarkets view as "must stock" items- items which consumers expect to see in their stores. Unilever is facing, or will shortly face, significant cost increases as a result of the significant effective devaluation of the pound relative to the Euro and particularly the dollar. So Tesco will claim that Unilever is putting up its prices too much, but how much is due to rises in costs and how much due to anticipated future cost rises (and how much to desire to increase margins) is very difficult to determine, since most manufactured foods combine produce from several countries and companies such as Unilever will hold hedges against currency movements to some extent
Undoubtedly, other supermarkets will see the same effects coming through, and other powerful brands such as Nestle, Heinz and Kellogg will also be pushing for price rises. We are already seeing the effects of the devaluation on petrol prices, and we can expect more in the coming weeks.
The underlying cause of the devaluation is of course the moves towards Brexit and the fact that traders expect the British economy to become weaker.
Prof Mike Waterson, Economics
1) It demonstrates the real impact of Brexit
2) Raises the issue of supply chain & the pressure put on suppliers. If the price of production has gone up then to ensure sustainability of supply the retail price needs to go up.
Question is. Who in the supply chain should absorb this increase? Could it be shared by consumer, retailer & manufacturer? Should it all be passed onto consumer so we can see the true cost of Brexit?
There are reports that not all products are produced in the UK. The more important point is the source of the raw materials. They could still be sourced from other parts of world & subject to exchange rate fluctuations.
Great that Unilever have brought issue to public attention.
Jan Godsell, Professor of Operations and Supply Chain Strategy, WMG