By Saabira Chaudhuri
LONDON--Consumer giant Unilever PLC is raising U.K. prices for
products ranging from mayonnaise to shampoo, after months of
more-discreet price rises amid a Brexit-triggered currency rout
that is now threatening ordinary Britons' buying power.
Unilever is asking its biggest grocery-store customers here for
price increases of 10% on average, according to people familiar
with the matter. That demand set the stage for an unusual public
standoff with Tesco PLC, Britain's biggest grocer. Tesco, which is
also one of the world's largest retailers, late Wednesday started
taking Unilever products off its website after refusing to pay the
higher prices, though they are still on its store shelves for
now.
Unilever confirmed Thursday it had asked most of its retailer
customers for higher prices for its goods, which include household
names such as Hellmann's mayonnaise, Dove soap and Ben &
Jerry's ice cream. It also makes Marmite, a dark and salty spread
popular here. It cited rising commodity costs in dollars,
which--coupled with the sharp decline in the pound--have raised the
cost of imported ingredients. The Anglo-Dutch company, the world's
second-largest consumer goods maker after Procter & Gamble Co.,
didn't detail its price demands.
"The price increases have landed," said Unilever Chief Financial
Officer Graeme Pitkethly on a call with analysts Thursday.
It was unclear whether those price rises have already been
passed along to consumers in Britain's ultracompetitive grocery
market--or whether they ever will be. The U.K.'s biggest national
chains have engaged in costly price wars for years, fighting each
other and a new band of ultra-low-price discounters for market
share. If other big consumer-goods producers, such as P&G and
Mondelez International Inc., don't follow suit, shoppers would
enjoy plenty of options for switching brands to keep budgets in
check.
Still, Unilever has considerable pricing power here. It commands
a 37% share of Britain's ice cream market, for instance, and 21% of
its table sauce market, according to Euromonitor. Data from U.K.
grocery price-tracking website MySupermarket shows major retailers
have raised prices on some Unilever products in recent days but
lowered them on others.
The price increase and Unilever's spat with Tesco--splashed
across the front pages of British newspapers Thursday and trending
online as "#Marmitegate"--put the economic stakes of Brexit for
everyday Britons in suddenly high relief. With so many of the
details of London's planned split with the European Union still
subject to years of negotiations, the biggest impact felt so far by
companies and consumers has been the pound's steep descent. The
pound is down roughly 15% since the June 23 Brexit vote.
That has triggered a tourist boom here, with visitors taking
advantage of cheaper hotel accommodation and shopping. Many British
exporters have also gained, as their goods are now more competitive
overseas. Many big U.K.-based multinationals are also benefiting
from higher revenue, as their overseas sales are converted back
into sterling.
But for importers, the fall of the pound has caused pain.
Changes in exchange rates affect input prices almost immediately.
Imported materials for businesses rose in price by 9.3% in August
compared with a year earlier. Such changes take longer to filter
through to consumers. Consumer prices increased just 0.6% in the
period.
Still, for many U.K. residents, sterling's fall is already
causing discomfort. Overseas vacations are much more expensive,
keeping many Britons at home. Retail prices of many imported goods,
such as electronic devices, wine and cars, have been ticking higher
for weeks.
Those increases so far have centered mostly around discretionary
items. With Unilever's latest move, the prospect of higher prices
for staples suddenly looms larger. Bernstein analyst Bruno Monteyne
said the Unilever-Tesco dispute presaged "inevitable Brexit-induced
price inflation."
Last month, the Bank of England noted that retailers were "very
cautious about any increases in prices, given that consumers
remained highly price sensitive, and so the extent and timing of
pass-through would largely depend on competitors' actions,
particularly in food retail."
David Dines, a 56-year-old soccer coach voted in June to remain
in the EU. Outside a Tesco store in south central London, tossing
an avocado he just bought, he said the prospect of price
fluctuations is "the consequence of Brexit, isn't it? It's
inevitable."
Unilever disclosed the price changes as it navigates tough
market conditions around the world. On Thursday it posted
third-quarter sales growth on an underlying basis--which strips out
the impact of acquisitions, disposals and exchange-rate changes--of
3.2%, down from 5.7% growth in the same period a year earlier. The
price rises the company has pushed through so far "are
substantially less than we would need to cover the impact on our
own profitability," Chief Financial Officer Graeme Pitkethly
said.
He said Unilever has seen a EUR600 million ($662 million)
increase in costs this year tied to currency devaluation, excluding
the effect from the pound. Unilever's hedging arrangements
typically protect it between four and six months out, however, and
the company may start seeing the effect of higher sterling costs
later this month.
In publicly rejecting the Unilever increases so far, Tesco
enters negotiations that could set the tone for how any future
price rises are passed along in Britain across the rest of the
industry. Tesco Chief Executive Dave Lewis is a former Unilever
executive.
Through a spokesman Tesco said only that it was "experiencing
availability issues on a number of Unilever products. We hope to
have this issue resolved soon."
Unilever also approached J Sainsbury PLC and other British
supermarkets about raising prices by around 10% on average,
according to a person familiar with those conversations. Sainsbury
is still in talks with Unilever.
Stu Woo and Mike Bird in London contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
October 13, 2016 10:21 ET (14:21 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Unilever NV (NYSE:UN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Unilever NV (NYSE:UN)
Historical Stock Chart
From Sep 2023 to Sep 2024