Why has the pound made Marmite cost more?
Why are so many well-known food and consumer brands, including Dove shampoo, Ben & Jerry’s ice cream and Marmite spread, “currently unavailable” on the website of Tesco, Britain’s biggest supermarket?
It’s because all of these products, and more, are manufactured by the consumer goods conglomerate Unilever. Tesco has stopped selling the products online because Unilever wants to put their prices up — a move that Tesco is resisting.
How much does Unilever want to increases prices by?
We don’t know for sure because neither side will comment on the specifics. But from what’s going on in the rest of the industry, it looks as though Unilever wants to increase prices on average by 10 per cent.
That’s a big price rise. What’s Unilever’s justification for this?
Unilever on Thursday published a chart showing that commodity prices have gone up sharply since January. As a result, the ingredients for food products and packaging costs — for materials such as aluminium — are higher. In addition, these commodities are priced in dollars so, since the pound has weakened following the UK’s vote to leave the EU in June the costs of selling in the UK have gone up significantly for Unilever. Its profit margins will fall unless it raises prices now.
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Hang on. Marmite yeast extract spread is made in Burton upon Trent, in Staffordshire, England, and most of its ingredients come from the UK. So why is Unilever demanding that its price go up by 10 per cent?
Good question. Marmite’s main ingredient is slurried yeast, a byproduct of beer production, bought cheaply from breweries across the UK and transported to a factory in Staffordshire. In fact, the majority of the products sold by Unilever in the UK is made locally. But, at the same time, the packaging, raw materials and even the factory machinery will generally be purchased from overseas, and higher prices for these will raise the cost of producing Marmite.
So is Unilever trying it on where Marmite is concerned?
It’s possible that the increased cost of making a jar of Marmite is not as high as 10 per cent. But we don’t know all the details. Unilever’s demand for a 10 per cent price rise could be an opening negotiating stance rather than the actual increase agreed for all of its products. Remember, too, that it will be Tesco that sets the final price to the consumer.
Why doesn’t Tesco simply raise the price to the consumer?
There’s a huge price war going on in the UK as big supermarket groups try to hold on to market share in the face of competition from hard discounters such as Aldi and Lidl. No supermarket can afford to be uncompetitive on price at the moment. Tesco’s operating profit margin last year was only 1.9 per cent. By contrast, Unilever’s was 14.1 per cent.
But I can still buy Marmite and other Unilever products at other supermarkets — so is this a case of Tesco not understanding Unilever’s position?
Actually, Dave Lewis, chief executive of Tesco, worked at Unilever for 27 years before moving to the supermarket two years ago. So he understands both businesses very well, which may be why he is prepared to take such a firm stance against Unilever. These price negotiations are often fraught but compromise is usually reached. It’s unusual for it to spill out in the open like this.
So why did it end up with so many products unavailable at Tesco?
Since Tesco is Britain’s biggest supermarket group and Unilever the largest manufacturer of food and personal care products in the UK, “the 2 gorillas on both sides have decided to go through the motions of the negotiation on behalf of the industry,” says Bruno Monteyne, an analyst at Bernstein.
How long before my supply of Marmite runs out?
Tesco usually has a week or two’s supply in stock. But it may not come to that — Unilever said on Thursday it was confident the matter would be resolved soon.