Brexit bites: Marmite maul will spread far beyond Unilever-Tesco

Price squeeze: 'Marmitegate' reveals new food chain tensions in the post-Brexit world. ©jesshalliday

The spat between Marmite-maker Unilever and supermarket Tesco has made many of the front pages in the UK this morning, but this spreads much further than these two gorillas of the world’s grocery industry. SMEs could be hardest hit. 

As Bruno Monteyne, a senior analyst in European food retail at Sanford Bernstein, put it on BBC Radio 4’s Today programme: this isn’t just about Tesco, nor is it just about Unilever, “it’s about every damn retailer in the UK and every supplier in the UK”.

Unilever has proposed a 10% price increase for a number of products in its portfolio and Tesco has said no. Some products have therefore vanished from the retailer’s website, causing panic amongst Marmite lovers and joy amongst the other half of the nation that hates the spread. “It’s the best news to come from Brexit,” quipped one Twitterer.

Marmite, like Brexit, divides the nation. And, like Brexit, the brand is here to say. Why? Because this is just the start of the negotiating process – one that happens right across the grocery supply chain. Unilever’s finance chief even started his briefing on the company’s Q3 performance this week by completely ignoring the situation with Tesco. “This is just a devaluation-led cost increase, this is just quite normal,” said Graeme Pitkethly.

Sky News is already reporting that other supermarkets are in similar negotiations with the FMCG giant, which also makes Pot Noodles and Hellman’s mayonnaise. However, there is nothing ‘normal’ about the circumstances that have put Unilever in this position. Ian Wright, director general at the Food and Drink Federation, which represents the country’s manufacturers, said this standoff is “emblematic of what will come”.

Some analysts have long feared Brexit could bite manufacturers on the backside. The results of the survey the UK Food and Drink Federation (FDF) published yesterday showed just how many are already hurting: 63% said product margins have decreased since the EU referendum, while 76% are tackling increased ingredient costs. Confidence levels are ‘fragile’, FDF noted.

Price-rise poker

It’s a fair bet that many other big FMCGs are – or certainly will soon be – engaging in similar games of price-rise poker with their UK retail customers: a plummeting pound and the uncertainty regarding a Brexit deal are strong cards for them to play. But these are firms that can also afford to lose a few hands.

Unilever has already managed 15.5% price hikes in Latin America and more than 90% of its business is outside the UK. What about the smaller companies? Some 96% of the UK’s food and drink businesses are micro to medium-sized – many of them can’t afford to gamble with the supermarkets.

This brings to mind a conversation I had back in July with Claudi and Fin – even then, the frozen yoghurt lolly maker was staring at a 13% rise in prices. “In the short-term we expect to shoulder all of that,” co-founder Meriel Kehoe told me as she prepared to keep prices competitive in the frozen food category dominated by … you guessed it, Unilever.

Almost four months on and the FDF’s poll showed almost one in three (30%) SMEs are ‘much less confident’ about the general business environment following the vote to leave the European Union. And let’s not forget, UK companies are also having to weather wage increases through the new National Living Wage.

Critical moment

You get the feeling this is a critical moment in the Brexit story, but we all saw it coming. The UK has one of the most price-competitive grocery markets in the world (and did so even before the discounters like Aldi and Lidl waded in and started eating away at the big five’s share), so as the pound continued to fall in the aftermath of the EU referendum there was a certain inevitability that someone, eventually, would have to budge.

Many will find this a harder pill to swallow than Unilever.

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