Tesco vs Unilever - the thin end of the wedge
A public dispute has erupted between Tesco and one of its key suppliers, Unilever, thanks to the pressure on pricing arising from a weaker pound.
Less than two weeks ago, in its interim results, Tesco told us it has witnessed a ‘very strong improvement in UK supplier satisfaction measure at 78%’, meaning almost 4 in 5 suppliers said they were satisfied with the experience of working with Tesco.
This public spat with Unilever highlights the pressure these relationships are likely to come under, as a weaker pound leads suppliers to try to push through price increases, while UK retailers try to keep consumer prices low, in what is an extremely competitive market.
Indeed only a few days ago the British Retail Consortium warned that Brexit could lead to higher prices on the high street.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown:
"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.
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.
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.
If we do get rising inflation, that will also have a negative impact on cash savers, who will find the measly crumbs of interest they are currently picking up aren’t sufficient to protect them from price rises, and the buying power of their savings will actually start going backwards."
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