U.K. Retail, Consumer Products Giants Scrap Over Brexit Price Rises

LONDON—A big food fight just broke out in corporate Britain.

Late Wednesday, Tesco PLC, Britain's largest grocery chain, removed from its online shopping site products made by Unilever PLC, another British-based multinational, because the consumer-goods maker insisted on higher prices.

On Thursday, Unilever confirmed the price hike, saying it had asked most of its retailer customers in the U.K. for higher prices to compensate for the fast-falling pound, which is down some 15% since the June 23 Brexit vote. It didn't provide details, but according to people familiar with the matter, it is insisting on a 10% price rise across its range of products.

The standoff pits two of Britain's business titans—and two of the world's biggest companies—against each other in a high-profile spat that was splashed across British papers on Thursday. The feud was trending on social media as #marmitegate, for the dark, salty spread called Marmite that has a cult following here and is made by Unilever. (Unilever also makes Hellmann's mayonnaise, Dove soap and Ben & Jerry's ice cream.)

Not only does Tesco dominate the British grocery sector, it is one of the world's biggest retailers. Unilever, meanwhile, is the world's second-largest consumer-goods maker, behind Procter & Gamble Co. The Anglo-Dutch company occupies Unilever House, its imposing neoclassic headquarters along the River Thames in central London.

There is always considerable brinkmanship in negotiations between suppliers and retailers—few places more so than in Britain's ultracompetitive grocery business. Price wars in recent years have pitted Tesco against a handful of smaller, national chains as well as upstart deep-discount chains that have flourished since the global economic downturn. The Unilever-Tesco standoff, analysts say, could set the tone for how any future prices rises in the U.K. are passed along across the rest of the industry.

"This isn't about Tesco or Unilever but about all U.K. retailers and suppliers," said Bernstein analyst Bruno Monteyne.

Unilever, however, has picked a tough sparring partner in Tesco Chief Executive Dave Lewis. He recently told reporters in London that suppliers haven't historically cut prices when input costs decline and he wasn't convinced they should be allowed to raise them now.

He should know. Mr. Lewis once headed Unilever's personal-care division and has spent years on the other side of the table in such negotiations. He was widely seen as a possible successor to Unilever CEO Paul Polman before he left for Tesco.

Mr. Lewis has previously dug in his heels in negotiations with suppliers. Last year, Tesco removed Carlsberg products from most of its stores as part of a product range review. It also temporarily took Schweppes brands off shelves, after a falling out with owner Coca-Cola European Partners, which licenses Schweppes in the U.K. and wanted to raise prices.

Despite all the talk about Brexit, analysts have questioned Unilever's timing on the price hike. It is boosting prices at a time when it is suffering falling sales volume. Marmite, many have pointed out Thursday, wouldn't appear to contain any foreign ingredients. That raises questions about why Unilever would need to raise prices on the product so steeply.

Unilever Chief Financial Officer Graeme Pitkethly told investors that pricing decisions are delegated to local markets. The U.K. makes up about 5% of Unilever sales.

On Tesco's side, Mr. Lewis's refusal to raise prices has been interpreted by some industry insiders as a smart way to burnish Tesco's reputation. The company has suffered in the public eye in recent years after it hiked profit margins during the global financial crisis. More recently, it delivered a number of profit warnings and disclosed an accounting scandal. Under Mr. Lewis, it has attempted to get back to basics, creating a line of lower-priced products and painting itself as a company dedicated to ordinary Britons.

Through a spokesman, Tesco has said only that it was "experiencing availability issues on a number of Unilever products. We hope to have this issue resolved soon." So far, Unilever products are still on Tesco store shelves.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

October 13, 2016 11:35 ET (15:35 GMT)

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