Tesco And Unilever Resolve Price Rise Dispute

Unilever brands are returning to Tesco’s shelves after the two firms resolved their dispute over the manufacturer’s demands to raise prices by around 10% to offset the fall in the value of the sterling.

In a statement yesterday afternoon, Unilever said: “Unilever is pleased to confirm that the supply situation with Tesco in the UK and Ireland has now been successfully resolved.

“We have been working together closely to reach this resolution and ensure our much-loved brands are once again fully available. For all those that missed us, thanks for all the love.”

Meanwhile, a spokesperson for Tesco said: “We always put our customers first and we’re pleased this situation has been resolved to our satisfaction.”

Both companies did not comment on how much extra Tesco had agreed to pay for Unilever’s products or how much of the price rise would be passed on to customers. A report by the BBC suggested Unilever had given some ground to settle its disagreement with Tesco, who wants to keep its prices down as it battles to regain ground from the discounters.

Tesco had earlier halted online sales of a large number of Unilever’s best-selling brands due to the dispute with stocks also running low in some of its stores.

Earlier in the day, Unilever’s CFO Graeme Pitkethly had said: “The price increases we are passing on are lower than the impact on our own profitability. We care deeply about the customer affordability of our brands, but we do not set the prices charged to consumers.”

Asda is also said to have reached an agreement with Unilever. A spokesperson for the supermarket said: “We pride ourselves on having famously low prices for customers every day and work tirelessly with our suppliers to keep prices low”.

Asda had tried to capitalise on Tesco’s fall-out with Unilever by cutting the price of Marmite in its stores from £2.35 to £2, accompanied by marketing material that said: “Love It hate It, Either way we have it.”

Sterling has dropped by about 16% against the euro and 19% against the dollar since the Brexit vote in June.  Analysts said Unilever’s demands reflected attempts by a number of large companies to offset rising costs with more disputes between retailers and suppliers likely if the value of pound fails to recover.

Whilst stressing that she was unable to comment on the commercial relationships of individual members, Helen Dickinson, CEO of the British Retail Consortium, said: “Retailers are firmly on the side of consumers in negotiating with suppliers and improving efficiencies in the supply chain to control the inflationary pressure that is building through the devaluation of the pound.

“However, years of falling shop prices and higher costs have left limited scope for retailers to continue absorbing this pressure, and everyone in the supply chain will need to play their part in maintaining low prices for consumers.”

Meanwhile, Heiner Evanschitzky, Professor of Marketing at Aston Business School, commented: “Upsets of the kind between Tesco and Unilever are not uncommon. But what’s more unusual is that the story has been dragged into the public domain. It suggests to me that Tesco has a hidden agenda, perhaps wanting to send a message to customers that prices will go up while appearing to fight hard to keep them at a reasonable level.

“Increases in price as a result of increased input costs due to the drop in the pound are inevitable. As ever, both manufacturers and retailers will pick up the cost. But then manufacturers enjoy a fatter margin than retailers and tend to have greater wriggle room when this kind of thing happens.

“I expect we’ll see price increases in the mid-term. Most firms will have hedged against currency fluctuations, so there shouldn’t be an immediate effect as the pound drops. But when existing contracts are renewed, wholesale prices will likely go up. If we believe in a 10% rise, as Unilever seems to be claiming, I’d expect retail prices to increase by between 2-5%, depending on the percentage of variable costs of the sales price. The big four retailers won’t be able to afford it otherwise.”