Unilever and Tesco Pricing Dispute is Sign of Things To Come, Says FDF Boss

13 Oct 2016 --- Tesco's decision to pull Unilever-branded products from its website over a pricing dispute after a slump in the value of sterling is "emblematic" of similar type of spats to come, according to the boss of the UK Food and Drink Federation (FDF).

The UK's biggest supermarket has pulled Unilever products including Ben & Jerry's ice cream, Marmite, Surf washing powder and PG Tips tea from its website, after Unilever tried to push through a price rise of around 10 percent that it charges Tesco and other supermarkets for listing its’ products.

The decision comes amid a backdrop to heightened tensions between retailers and suppliers battling for profits in the post-Brexit world.

Unilever said it made the price rise demand, as it needed to meet the higher cost of imported commodities and ingredients, in light of a fall in the value of sterling, which had dropped by around 16 percent since the UK voted to leave the EU.

Tesco said the products were not available online but were still being sold in stores, but said its shelves were running short of several brands.

It said it was "currently experiencing availability issues on a number of Unilever products.”

"We hope to have this issue resolved soon," the company added, but did not indicate when this would be.

Trading disputes over pricing between suppliers and retailers are nothing new and are usually resolved quickly. 

But some observers believe the drastic fall in the value of sterling post-Brexit will mean that they become more common and will impact the consumer who will be unable to buy certain products.

Ian Wright, director general of the FDF, which represents Unilever in the UK, told Radio 4 today (Thursday): "This is emblematic of what is come to this spat.”

“What we are seeing here is the first sign of a series of price increases which retailers are going to fight not to impose and manufacturers are going to seek to pass on because they have had a 20 percent increase in the value of their ingredients and import costs."

Wright said he believed that "clearly" a resolution would be reached between the two companies.

Unilever finance director Graeme Pitkethly, speaking to analysts today, did not divulge much detail about the dispute with Tesco. 

But he did say the dispute was a normal part of business and this was a "devaluation-led" cost increase, clearly referring to the fall in value of sterling.

Although the UK represents just five percent of Unilever's business, analysts believe that the consumer giant, which has also been trying to rise prices at the country's other big supermarkets – ASDA, Sainsbury’s and Morrison’s – will be keen to get its products back on the shelves of Tesco.

Bruno Monteyne, an analyst at Sanford Bernstein, who used to work at Tesco, said that Unilever and Tesco were acting as the "two gorillas" of the food and drink industry.

Speaking to Radio 4 today, he said: "I think both Unilever and Tesco are trying to be the two gorillas on behalf of the industry. This isn't about Tesco, this isn't about Unilever. It's every damn retailer in the UK and every supplier."

"Clearly when the currency drops by 14-15 percent. When the shampoo produced on the continent will be 15 percent more expensive, there is no denying that the fact the currency has a huge impact, whether it is produced on the continent or you have to import commodities."

Separately, Unilever today updated the market on its third quarter trading, which were ahead of expectations.

Underlying sales growth came in at 3.2 percent for the last three months, ahead of the 2.9 percent expected by analysts.

Sales across its food division were €2.9bn ($3.2bn) in the third quarter, up 1.7 percent. 

The Anglo-Dutch giant pointed to the return to growth in savory, led by cooking products in emerging markets, and dressings “driven by the squeezy packs with proprietary easy-out technology and organic variants.”

However, across spreads the rate of decline in Europe has continued but slowed in North America.

by John Reynolds

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