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Pound plunge prompts battle between Unilever and Tesco

As of late morning on Thursday shares in Unilever were trading 3% lower at 3610p. Tesco shares fared little better, falling 2.2% to sit at 196p.

The FTSE 100 also had a bad morning, dipping 0.7% be back under 7000 at 6976.

Tesco has refused to accept a proposed 10% price rise across a number of products supplied to it by Unilever such as Marmite and Persil washing powder. 

Unilever has argued the fall in the value of pound justifies higher prices, but Tesco and its chief executive Dave Lewis see things differently.

The clash coincides with Unilever revealing third quarter sales increased by 3.4% at constant exchange rates while turnover declined 0.1%.

“Our business continues to demonstrate its resilience by growing competitively and consistently in tough market conditions,” said CEO Paul Polman.

“Underlying sales growth of 4.2% in the first nine months, including over 7% in emerging countries, was ahead of our markets across all four categories. This was driven by strong innovations in support of our category strategies. During the third quarter, we have made further progress in reshaping our portfolio, adding businesses in fast-growing segments with the acquisitions of Dollar Shave Club, Blueair and Seventh Generation. With markets remaining soft and volatile, we have continued to transform our business at an accelerated pace,” Polman added.

According to senior analyst a Hargreaves Lansdown Laith Khalaf, the pricing issue involving Unilever and Tesco could be the first of a series.

“This pricing spat is likely to be the thin end of the wedge when it comes to relationships between UK retailers and their suppliers, in light of the pressures now applied by weaker sterling,” he said. “This kind of friction is an inevitable result of the unstoppable force of higher import costs hitting the immovable object of UK retail pricing.”

“A lower pound helps exporters and has certainly given the UK stock market a leg up to record levels, but the dark side of a weaker currency is that it leads to more expensive imports, and hence rising inflation,” Khalaf continued. “That makes things look pretty ugly for retailers, who face an extremely competitive pricing environment, along with the challenge of adapting to changes in consumer behaviour driven by the digital revolution. It also doesn’t bode too well for consumers, who may soon face higher prices if retailers can’t entirely defray the higher costs of imports.” 

Part of the Bonhill Group.