SHAME ON UNILEVER FOR EXPLOITING BREXIT TO HIKE PRICES
ADISTINGUISHED writer friend of mine was sent out this week on a mission by his panicking wife. he was ordered to find as many large jars of Marmite as possible, at any price, because they were rapidly vanishing from the shelves of all the supermarkets.
thankfully the dispute which caused Marmite’s disappearance has been resolved. But even so, the short-lived battle between the nation’s biggest producer of consumer goods, the Anglodutch giant unilever, and Britain’s biggest supermarket chain, tesco, could be a worrying portent of things to come. For on the surface, it was the first public manifestation of the impact of Brexit and a falling pound on the high street.
On one side was the £9.3 million-a-year suave committee-man Paul Polman, the dutch chief executive of unilever. his nemesis was ‘drastic’ dave Lewis, the bruising boss of tesco who, with exquisite irony, spent 27 years forging a fearsome reputation as unilever’s cost-cutting king – hence his nickname – before being brought in to shake up the supermarket chain.
At the heart of the fight between these two very different protagonists was unilever’s clumsy – and ultimately unsuccessful – attempt to protect itself against what it claimed was the impact of a falling pound by demanding an across-the-board price increase from tesco of 10 per cent on all of its products, which range from the breakfast favourite Marmite to Ben & Jerry’s ice cream and dove soap and beauty products.
But in choosing tesco – or, more pertinently, Lewis – as his means of battering supermarkets into paying more for unilever products, Polman badly miscalculated. Because Lewis has a reputation for standing up to price-war bullies like Polman, and forced unilever to stand down and admit yesterday evening that the situation ‘had been resolved’.
Lewis’s defiance on behalf of his customers resulted in a hugely welcome victory for people power against business giants determined to exploit Brexit to increase their profit margins at the expense of consumers.
At the centre of this dispute is a massive hypocrisy. Like the big oil and energy companies, unilever appears to have adopted what is known in the trade as a ‘rocket and feather’ approach to its pricing policy.
WHEN the cost of any ingredients used to manufacture its products climbs – which has happened in some cases because the fall in the pound makes imported components more expensive – the prices unilever charges for those products go up like a rocket.
But when the cost of those ingredients falls on the world markets – as happened in recent years thanks to a worldwide glut of key commodities and a stronger pound on the foreign exchange markets – unilever does its best to avoid cutting prices, and they fall only like a feather.
instead of passing on the benefits to supermarkets and the consumer, the company uses falling costs to raise the profit margin it makes on its sales. unilever’s main justification for the price increase was that it had been adversely affected by exchange rate movements. But as an exporter of British-made food and beauty products, the business – like many Ftse 100 companies – gains a competitive advantage from the fall in the pound which makes its goods cheaper to buy overseas.
What is more, the group’s own results for the third quarter, which have just been released and cover the post-Brexit era, show that the overall impact of exchange rate movements on all its main lines of business – health care, foods, home care and refreshment – was to increase costs by 3.4 per cent, which is less than one-third of the price hike it tried to impose on British households.
UK consumers will also be angry that this multi-national giant – which began life as Lever Brothers, a Quaker-run business renowned for its philanthropy as it made soap products at Port sunlight in Liverpool – reportedly organises the branding of some of its products through schaffhausen in switzerland to minimise its tax liabilities – something that’s legitimate, but hardly civic-minded.
Behind this battle between the British supermarkets and unilever is a historic war between the high street and its suppliers. the biggest suppliers like unilever have traditionally had the upper hand because they have brands that consumers want, and can ultimately damage the grocers by withdrawing supplies.
this is particularly true for specialist products such as Marmite because the alternative products, such as Lidl’s yeast-based spread, are simply not as good.
And while it is true that tesco and the supermarkets can behave ruthlessly – Britain’s dairy farmers, for example, have suffered mightily because the big grocery chains have been selling milk as so- called ‘loss leaders’ at rock bottom prices to lure customers into their stores – at least dave Lewis had the gumption to stand up to unilever on this occasion.
the truth is that unilever’s assault on British consumers was more about teaching the UK a harsh lesson for daring to leave the protective certainties of the eu than about the vagaries of Britain’s currency. After all, in the run up to the referendum, when many sensible British firms chose not to come down on any side, unilever was a staunch supporter of Remain.
DURING the referendum campaign, long before the 17 per cent fall in the value of the pound, Polman was making hay of the fact that prices would rise: ‘Let’s take ice cream, for example, one of our Wall’s products – a Magnum. undoubtedly if the UK will leave, conditions would not be as good as if we stay in.’
But the reality is that a glut of home-produced milk means that ingredient costs for Magnums have rarely been lower.
the latest data shows that unilever, with its monopoly on so many household brands, has a staggering operating margin – the profit it makes on sales – of 15 per cent.
Contrast this with what is happening to Britain’s grocery market where the arrival of no-frills grocers such as german companies Lidl and Aldi has led to the fiercest price war in living memory. tesco, with almost 30 per cent of the grocery market, has a profit margin of just 1.7 per cent.
the fact is that unilever can comfortably absorb such pain as there is from Brexit. Which is why it is unconscionable that this company once regarded as a beacon of British enterprise and bellwether of the stock market should so gratuitously seek to punish its home market.