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Tesco v Unilever: What the analysts are saying about #Marmitegate

Caitlin Morrison
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Marmite - love it or hate it, it's one of Britain's most iconic products (Source: Getty)

As Brits try not to panic in the face of (probably) rapidly depleting Marmite stocks at Tesco, analysts have warned that Brexit-induced inflation is looming ever closer.

Tesco's share price dropped by 2.2 per cent in early trading today, after it was revealed the supermarket is in a dispute with consumer goods producer Unilever over pricing. The supermarket giant said it was running low on Unilever products, which include Marmite, PG Tips, Colman's Mustard and Hellman's.

Shares at Unilever are also down by more than two per cent. The group reported improved sales for the third quarter this morning.

Analysts at Bernstein noted that Tesco typically has one to two weeks' stock, so availability will soon deteriorate - and some products are temporarily delisted online. (Enterprising types are already cashing in on the crisis, with a jar of Marmite going up for sale on eBay this morning for a cool £100,000.)

"This is inevitable Brexit induced inflation," the Bernstein analysts added. "While politicians can deny reality, a shampoo produced on the continent is now 17 per cent more expensive."

They described the Tesco-Unilever spat as "retail-supplier negotiation 101".

"It's the supplier's role to pass on increased cost and it is retailer's job to challenge price increases. It happens all the time and in the end they settle for what seems a fair cost allocation," they said.

"However, those discussions rarely spill open in public and rarely lead to de-listings. Clearly the scale of the negotiation is much bigger than usual, but so is the event. Brexit-sized events are rare."

This is such a large event that it may simply be that the two gorillas on both sides have decided to go through the motions of the negotiation on behalf of the industry. This isn't about Tesco or Unilever but about all UK retailers & suppliers.

Conor Campbell, financial analyst at Spreadex, said the Brexit-induced battle was "a sign that sterling’s current Brexit-drag is only going to put even more pressure on a supermarket sector already engaged in a margin-slashing price war, and is another tangible example of Britain’s choice to leave the EU affecting the average person on the street". Sterling fell against the euro and the dollar again this morning, continuing the downward slide it's been on since Prime Minister Theresa May announced that she will trigger Article 50 by the end of next March.

Unilever won't "remain in a huff forever", according to City Index analyst Ken Odeluga, who said: "We expect common sense to prevail within days."

However, he added: "We expect similar conflicts between suppliers and High St. names to come to light in the near term, as the weak pound threatens margins further. Medium-sized British consumer goods manufacturers, whose revenues are not shielded by huge overseas sales—like Unilever’s—will be more vulnerable."

Meanwhile, Nicholas Hyett at Hargreaves Lansdown, said the strength of Unilever's brands "gives it the power to increase prices with only minimal impact on demand for its products".

"Furthermore, its global footprint means that it is not overly dependent on the fortunes of a single country, or beholden to the demands of a single supplier," Hyett added.

"Tesco may choose to stand its ground on pricing, but history suggests that if other retailers can stomach the increase, consumers will be willing to stump up to get their Unilever fix.”

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