The Tesco/Unilever Row - An Initial Analysis
Thursday, 13th October 2016
Great Britain is in a state of shock following Tesco's decision to pull all products produced by grocery giant Unilever from its online shelves. The decision was taken as a result of a price increase by Unilever, in order to offset the weakness of the pound in the wake of Brexit.
Dubbed #marmitegate due to the popularity of this particular Unilever product, the public appears both confused and annoyed by Tesco's decision. This will make obtaining branded products more of a challenge for consumers, who may be forced to change their shopping habits to accommodate this move by Tesco. Shoppers will have two options: they can continue to shop at Tesco but switch their choices to own brand or non-Unilever products, or they can switch their supermarket to one that still stocks Unilever. It will be interesting to see which of these is least objectionable to consumers. Will brand loyalty to Unilever products or Tesco prevail?
Tesco's decision comes as part of an ongoing dispute over who should absorb the costs of the falling value of the pound. Both Unilever and Tesco want to take profit on the products, which means that there is double mark-up on them by the time we take them to the check-out. An increase in Unilever's prices for Tesco would, ultimately, have resulted in either a cut in profits per item for Tesco, or an increase in prices for consumers. Tesco appears to be of the opinion that increasing the price of groceries further, to maintain its profit margins, would not be popular among consumers. It has decided to roll the dice and gamble that supermarket loyalty prevails over brand loyalty.
Undoubtedly, this dispute must come to a head and it will be interesting to see whether other big grocers follow Tesco's lead, or whether they see this as an opportunity to swallow the fall in profit per item in the hopes of cashing in on Unilever-loyal consumers, who may switch supermarkets.