Without naming Tesco, Unilever’s chief financial officer has said that he expects the price dispute between the two that has caused dozens of its household brands to be pulled from stores to be settled “really quickly”.
Speaking to analysts this morning (13 October) on the company’s quarterly earnings call, the FMCG firm's financial chief Graeme Pitkethly explained that price increases to offset its own higher costs due to the drop in sterling are a normal part of doing business. His business had demanded Tesco raise prices to help it cover a spike in outlays post-Brexit but the grocer refused and consequently pulled products like Marmite and Dove fom its site and shelves.
Pitkethly declined to comment specifically about the row with Tesco that has garnered much media attention over the last 12 hours, but downplayed any suggestion that it would have a major impact on customers in the long-term.
“We care deeply about the customer affordability of our brands,” he explained, before suggesting that the proposed price increases were “substantially” less than it would need to fully cover its own costs. Pitkethly assured those on the call that Unilever is “confident that this situation [between Tesco] will be resolved really quickly.”
This isn’t the first time that Tesco has been at odd with a major supplier and felt forced to pull their products. Previous reports have suggested it has an uneasy relationship with Coke, as seen last year when it scrapped 25 variants of Schweppes last year after the soft drinks giant request its products be sold at higher prices.
As supermarkets attempt to control how far they fall into the price war with discount chains, then disputes with suppliers are inevitable if they are to rebuild margins.
Tesco's dispute with Unilever, while interesting in its own right, also raises broader questions about the outlook for supermarket pricing, opined Catherine Shuttleworh, founder of retail agency Savvy Marketing.
“It is worth pointing out that this is the time of year when brands and supermarkets are deep in price negotiations. Unilever will certainly not be the only brand owner that is having challenging discussions with leading supermarkets, and we expect other grocery manufacturers will be seeking to increase their wholesale prices too. What is unusual about this case is that it is being played out on the front pages.
"From Tesco's perspective, it is understandable why it is taking a firm position. First, it has invested heavily in price over the past 18 months or so. Shopper perceptions of Tesco's prices have improved and the retailer will be determined not to undo that work. Second, Tesco is likely to hold the view that the grocery retail market is highly competitive, with margins already thin. It is having to contend with discounters' expansion and the high likelihood that Asda will become increasingly aggressive on price. Tesco will have a fair idea of what impact that will have on its own margin, and few are better qualified than Dave Lewis to know what the effect might be on Unilever's.
Unilever's defense of its stance in the row Tesco were made as Pitkethly shed light on how the business would offset a “high single digit decline” in Europe, where the UK accounts for less than 5% of its global business. As it is in its other markets, Unilever is trying to offset volume declines with higher prices, which helped it post a third quarter sales growth of 3.2%, down from the 5.7% in the same period last year.