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Analysis: Unilever vs Tesco spat is 'thin end of a very long wedge'

File photo dated 03/02/11 of someone spreading Marmite, as Unilever, one of the world's largest consumer goods manufacturers, is believed to have demanded a 10% price rise due to the falling value of sterling, halting deliveries to Tesco when it refused. Photo: Nick Potts/PA Wire.

File photo dated 03/02/11 of someone spreading Marmite, as Unilever, one of the world's largest consumer goods manufacturers, is believed to have demanded a 10% price rise due to the falling value of sterling, halting deliveries to Tesco when it refused. Photo: Nick Potts/PA Wire.

The pricing row between Tesco and Unilever is likely to be just the first skirmish in a lengthy battle played out across the retail industry, an expert from the University of East Anglia has warned.

Consumer goods giant Unilever is understood to have demanded a 10% price rise due to the falling value of the pound against the dollar and the euro, and halted deliveries to Tesco when the supermarket refused to accept the price hike.

But Prof Andrew Fearne of the Norwich Business School said the dispute was probably the start of negotiations between the two companies, rather than a permanent impasse.

“This is the first of many stand-offs that are inevitable as the implications of Brexit kick in and companies try to navigate a sustainable way forward,” said Prof Fearne, who main areas of research include consumer behaviour and value chain analysis.

“The problem is that some companies will use the exchange rate as a vehicle for negotiating price rises that are a) avoidable and b) could leave some of their customers un-competitive, if they agree to pay more when others refuse.”

He said Unilever’s call for price rises across the board “sounded unreasonable” given that a weaker pound would affect the cost of different products in different ways.

Prof Fearne added: “We have seen these stand-offs before and there is always an element of ‘bluff’ as the retailer tests their shoppers’ loyalty to specific brands looks to exploit the opportunity to encourage brand switching. Tesco are the biggest retailer so their actions always make the news but what we are seeing here is the thin edge of a very long wedge in the world of fast moving consumer goods.”

Prof Fearne has also worked with organisations large and small, including Tesco, sharing insights with farmers and small food producers to support the development of sustainable business models and marketing strategies.

Consumers have been enjoying four years in a row of falling retail prices, but the pressures of the weak pound is set to bring this to an end, with a New Year price surge predicted as retailers pass on higher costs after the festive season.

Retailers are facing rising costs of goods and materials from the plunging value of the pound since the Brexit vote, but are under pressure to keep prices low amid an intensely competitive market.

Former chief executives of Tesco, Sainsbury’s, Asda, Morrisons, Marks & Spencer and B&Q all warned ahead of the EU referendum that a drop in the pound - coupled with supply chain disruption - would cause prices to spike.

The Tesco stand-off with Unilever came hours after former Sainsbury’s boss Justin King said shoppers should expect price rises after the fall in the value of the pound since the Brexit vote.

Supermarkets are already taking a hit amid a fierce price war in the sector sparked off by the rising popularity of discounters Aldi and Lidl.

The British Retail Consortium warned earlier this week that Brexit could leave retailers with no option but to pass on costs to consumers.

It said: “While UK retailers have been very successful in insulating consumers from the cost of rising business rates and labour, the recent devaluation of the pound in relation to our most important trading currencies is compounding economic headwinds, while years of deflation have left little margin to absorb added cost from import tariffs and administrative burdens.”

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