Tesco pulls Unilever goods in Brexit row after pound plunges

[October 13, 2016]  By James Davey and Martinne Geller

LONDON (Reuters) - Britain's biggest retailer Tesco pulled Unilever goods such as Marmite from its website in a pricing row sparked by the Brexit-induced plunge in the pound, one of the most vivid signs to date of how leaving the EU could hurt consumers.

The dispute between Tesco and one of the world's biggest consumer goods companies means popular products such as Persil washing powder and PG Tips tea bags are not currently available via Tesco's website, the country's largest online grocer.

The June 23 vote took many investors and chief executives by surprise, triggering the deepest political and financial turmoil in Britain since World War Two and the biggest ever one-day fall in sterling against the dollar.

The pound is down 19 percent against the U.S. currency since the vote, forcing suppliers and retailers into a battle for profits as imported goods get more expensive. Now that battle could be about to be played out on supermarket shelves.

Bernstein analyst Bruno Monteyne, a former senior Tesco supply chain executive, said Tesco has typically one to two weeks' stock.

"While politicians can deny reality, a shampoo produced on the continent is now 17 percent more expensive," he said. "This isn't about Tesco or Unilever but about all UK retailers and suppliers."

Shortages of some of Britain's best loved brands such as Marmite, a brown salty spread, or PG Tips tea bags in supermarkets would be a clear illustration for consumers of the turbulence unleashed by the Brexit vote.

PRICING BATTLE

Two people familiar with the situation said Unilever had been trying to raise the prices it charges Britain's big four supermarkets - Tesco, Sainsbury's, Asda and Morrisons - across a wide range of goods by about 10 percent.

One of the sources said no other big consumer goods company had been as aggressive as Unilever on price demands.

The second source, at one of the other big four grocers and also speaking on the condition of anonymity, said they had protested against Unilever's demands, noting that some of the products they wanted to charge more for were actually made in Britain.

"What's really a problem is when a supplier like Unilever comes and asks for across the board cost increases and there's no negotiation, there's no discussion. That's been the approach that's upset the grocers," the source said.

Shares in both Tesco and Unilever were down more than 2 percent in early trading.

"We are taking price increases in the UK and that is a normal devaluation led cycle," Unilever Chief Financial Officer Graeme Pitkethly told analysts on Thursday, saying the scope of the increases was "substantially less" than what was needed to cover the impact from higher costs to its profits.

The logo of the Unilever group is seen at the Miko factory in Saint-Dizier, France, May 4, 2016. REUTERS/Philippe Wojazer/File Photo

"The price increases have landed with most of our customers and in the particular situation that's been covered so much in the press this morning we are confident that this situation will be resolved pretty quickly."

EMPTY SHELVES?

As of Wednesday evening, Unilever products - including Marmite spread, Ben & Jerry's ice cream, Lynx body spray and PG tips tea - were unavailable on Tesco's website, but the shortage had not yet affected stores, a Tesco spokesman said.

"We are currently experiencing availability issues on a number of Unilever products. We always work to ensure customers get the best possible prices and we hope to have this issue resolved soon," he said.

Last week, Tesco boss Dave Lewis, a former senior Unilever executive, hailed a transformed relationship with suppliers as a major factor in the grocer reporting a 60 percent rise in first-half profit. But he indicated it was not a given that suppliers should be able to recoup the cost of the falling pound as they had not always passed on benefits when sterling was much stronger.

Since Britain's shock Brexit decision in June its currency has also plunged 16 percent against the euro.

Most analysts and economists believe the slump will lead to higher grocery prices, following years of deflation due to a price war between the big chains.

A poll taken by Britain's Food and Drink Federation (FDF) between Sept. 16 and Oct. 7 showed three-quarters of British food manufacturers had seen an increase in the price of imported ingredients since the vote, and 63 percent reported a decrease in profit margin.

(Writing by Kate Holton; Editing by Guy Faulconbridge and Anna Willard)

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