Tesco pulls Unilever goods in prices row after Brexit vote

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at 2016.10.13
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Tesco pulls Unilever goods in prices row after Brexit vote

By James Davey and Martinne Geller | LONDON

LONDON Britain’s biggest retailer, Tesco (TSCO.L), halted online sales of top-selling goods produced by Unilever (ULVR.L) in a pricing row following a plunge in the pound since Britons voted to leave the European Union.

The dispute between Tesco and one of the world’s largest consumer goods companies was one of the first clear signs for consumers of the turbulence unleashed by the Brexit vote and of how it could hurt them.

Products such as Persil washing powder, Ben & Jerry’s ice cream and Marmite, a brown yeast-extract spread which is among Britain’s best loved brands, were not available on the website of Britain’s largest online grocer on Thursday.

The June 23 vote to leave the EU took many investors and company executives by surprise, unleashing the worst political and financial chaos in Britain since World War Two and causing the biggest one-day fall in sterling against the dollar.

The pound’s fall — it is down 19 percent against the U.S. currency and about 16 percent against the euro — has left suppliers and retailers battling for profits as imported goods become more expensive.

Now that fight could be hitting supermarket shelves. Supervalu, Ireland’s largest supermarket, said it was also holding negotiations with Unilever over pricing and could “experience some supply issues on certain Unilever products”.

Bruno Monteyne, a former senior Tesco executive who is now an analyst at Bernstein, said Tesco has typically one to two weeks’ stock.

“While politicians can deny reality, a shampoo produced on the continent is now 17 percent more expensive,” he said. “This isn’t about Tesco or Unilever but about all UK retailers and suppliers.”

Tesco and Unilever stock fell 2.2 and 3.5 percent respectively.

High street stalwart WH Smith (SMWH.L) said separately it would look to consolidate factories and negotiate better prices with suppliers to cut costs.

“If people are worried about losing Marmite from Tesco, wait until they find out about jobs…,” said Wes Streeting, a lawmaker from the opposition Labour Party who backed the Remain campaign in the June 23 referendum.

“MARMITEGATE”

The pricing row reflects the tensions building throughout the system, with Tesco the one retailer big enough to push back against Unilever’s demands and Unilever one of the only suppliers powerful enough to stand its ground.

The standoff dominated the news in Britain on Thursday, with “Marmitegate” trending on Twitter and “Marmite Wars” splashed on the front pages. The Daily Mail dubbed it “Brexit Blackmail.

It also has a personal dimension as Tesco boss Dave Lewis’ previous job was as a senior executive at Unilever, where his radical overhaul of the firm’s businesses won him the nickname “Drastic Dave”.

An executive at a rival consumer goods company that has not pushed for UK price increases said it was “absolutely brilliant positioning” by Tesco and no coincidence that the news broke on Wednesday, the eve of Unilever publishing financial results showing better-than-expected sales growth due to pricing.

“This makes Dave Lewis look like a hero defending consumers,” the person said.

At a Tesco Superstore in Laindon in southeast England, Lewis had some support.

“Tesco should stick it out, and get the other supermarkets to do the same. Unilever shouldn’t be able to tell them what to do,” said Jeaninne Richards, 69, a retired dressmaker. “Unilever is being so greedy. They are using Brexit as an excuse.”

Unilever Chief Financial Officer Graeme Pitkethly said that devaluation-led price increases were a normal part of doing business, but declined to comment specifically on the row with Tesco.

AGGRESSIVE

Two people familiar with the situation said Unilever had demanded 10 percent rises in the prices it charges Britain’s big four supermarkets — Tesco, Sainsbury’s (SBRY.L), Asda (WMT.N) and Morrisons (MRW.L) — across a wide range of goods.

One said no other big consumer goods company had been as aggressive as Unilever on price demands while the second source said they had protested against Unilever’s demands as some of the products were made in Britain.

The sources said two of the big four were still weighing whether to accept the rises or scrap some products.

Pitkethly said the increases were “substantially less” than what was needed to cover the hit from the pound’s fall.

“We are confident that this situation will be resolved pretty quickly,” he said.

Tesco said it hoped to have the matter “resolved soon”.

David Sables, CEO of Sentinel Management Consultants, a firm

that coaches major suppliers on how to negotiate with big UK

grocers, said he expected the standoff to end within two weeks.

“There will be more logic at the table than emotion,” he

said. “There has to be a resolution in which a level of pricing

is put through and … the products get back on shelf.”

Tesco is rebuilding itself after a 2014 scandal when it acknowledged overstating profits and pressuring its suppliers into driving down prices. Last week Lewis hailed a transformed relationship with suppliers as a factor in the grocer reporting a 60 percent rise in first-half profit.

But he indicated it was not a given that suppliers should be able to recoup the cost of the falling pound as they had not always passed on benefits when sterling was much stronger.

Most analysts and economists believe sterling’s slump will lead to higher grocery prices, following years of deflation because of a price war between the big chains.

(Additional reporting by Kylie MacLellan and Helen Reid, Writing by Kate Holton, Editing by Anna Willard and Timothy Heritage)

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Published at Thu, 13 Oct 2016 16:16:53 +0000

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