Unilever has defended its decision to increase the prices of its household products – a move which has sparked a row with UK grocery retailer Tesco.
The consumer goods company’s Chief Financial Officer Graeme Pitkethly said on Thursday that there was nothing unusual about the price rises, considering the slump in the value of the sterling following Britain’s decision to exit the European Union. He said the increases were needed to offset rising costs and that they “have landed with” most of the company’s customers.
“We are taking price increases in the UK,” Graeme said. “That is a normal devaluation-led cycle.”
Tesco’s stock of a variety of Unilever household products, ranging from Marmite to Ben & Jerry’s ice cream and Persil, has been running low. This follows decision by the leading consumer goods company to stop making supplies to the UK’s largest grocery retailer as a result of disagreement over prices.
Unilever had reportedly requested Tesco to raise product prices by 10 percent on average, citing the decline of the pound in relation to the euro following the June 23 Brexit referendum. The British grocer refused the request.
Tesco has now removed several of Unilever’s products, including Marmite and Ben & Jerry’s ice cream, from its website. A spokesman for the grocer said these products are still available in stores, even when they may no longer be on its online site.
Pitkethly told the Wall Street Journal in an interview that pricing decisions are made in individual local markets. He noted that Unilever typically considers the effect prices rises could have on affordability by customers and if such are likely to induce a switch to cheaper products.
The chief financial officer said the consumer goods giant has noticed a €600 million ($660 million) surge in costs this year as a result of currency devaluation. He further stated that the changes in price that are being pushed for are considerably less than what the company would need to cover impact on profitability.
Pitkethly disclosed that Unilever and Tesco are working together to resolve their pricing row “pretty quickly.”
Shares of both companies opened lower on Thursday morning.
The Anglo-Dutch consumer goods giant posted third quarter results which came in better than expected, thanks to price increases effected across the globe. Underlying sales growth of 3.2 percent was recorded in the quarter, down from 5.7 percent in the same period a year ago, but higher than what analysts predicted. Sales growth on an underlying basis slowed to 5.6 percent from 8.4 percent a year ago as a result of price increases and increasing competition in emerging markets.
The WSJ, citing a person familiar with the matter, reports that Unilever has also approached UK’s second-largest consumer goods chain J Sainsbury about increasing prices by an average of about 10 percent.
Analysts believe how Unilever and Tesco settle the row between them will set the precedence on how price increases are passed across the industry.
Pitkethly said the UK market accounts for around 5 percent of sales made globally by Unilever.