Marmitegate leaves a sour taste.

This week’s Marmitegate episode was a masterstroke of communication by Tesco, and its share price reacted accordingly.  Price disputes between supermarkets and suppliers rarely make headline news, but Tesco deliberately chose to air its laundry in public on this occasion.  Tesco has effectively sounded the warning to the shopping public that there is an imminent dramatic price hike coming to most products due to the weakness of the Pound, whilst at the same time showing that it is blameless and positioning itself as the champion of the consumer.  It has rarely been accused of that in the past.

When you dig a little deeper, some interesting themes emerge. Tesco’s operating profit margin last year was 1.9%, reflecting the ongoing price war between the big four and the discounters. Meanwhile, Unilever’s operating profit margin last year sat at 14.1%.  Unilever could chose to absorb some of the hike but it believes the strength of its brands means it won’t give up much market share on the back of higher prices.

More alarmingly, much has been made of the fact that Marmite is produced with British ingredients, so a stronger dollar should play little part in this particular product pricing. Unilever claims packaging is sourced abroad and has impacted prices, but one is left with the impression that they are taking advantage of circumstances to build margin across their entire range.   It would be a fair assumption that they won’t be the only suppliers having a go at this game.

It’s worth remembering that British sourced good will not be immune to price rises either.  Energy is priced in USD, and energy forms a considerable input cost to any manufactured food or good.  So whilst we celebrate the benefits of a weaker Pound for our exporters (notwithstanding they frequent have to source now more expensive Dollar priced commodities internationally) we should remember that it will come as a daily cost to our family pockets.