Marmite: love it or sell it?

Marmite maker Unilever picked a fight with supermarket giant Tesco. Its shares were the loser, says Ben Judge.

The headlines were full of Tesco's shock removal of Marmite and other Unilever products from its online shopping site last week. Casting itself against type, Tesco played the part of the little guy squeezed by its suppliers, protesting against Unilever's price rise of 10% across the board. In its defence, Unilever blamed increased costs sparked by the tumbling pound.

The press's verdict was unanimous: Unilever was the villain. "Sure, currency-related costs for some raw materials have risen post-Brexit," said Jim Armitage in the Evening Standard, "but Unilever is whacking up everything whether from Burton-on-Trent or Brussels."

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

"At the centre of this dispute", says Alex Brummer in the Daily Mail, is "massive hypocrisy", with Unilever adopting "a rocket and feather' approach to its pricing policy". In other words, when the cost of ingredients rises, prices "go up like a rocket". But when they fall, "they fall only like a feather". What is more, the overall impact of exchange-rate movements for the third quarter, which covers the period since the EU referendum, "was to increase costs by 3.4%" far less than Unilever was demanding.

But picking on Tesco was a mistake. The supermarket giant "has a reputation for standing up to price-war bullies". Tesco's chief executive, Dave Lewis, spent 27 years working at Unilever before moving to Tesco; he will have had "a keen sense of when his former colleagues have overplayed their hand", says Nils Pratley in The Guardian. "From a tactical point of view", Lewis has "played a blinder in positioning Tesco as a stout defender of UK consumers' interests".

"The City was unanimous on who had come off better," says Alex Ralph in The Times. But the dispute "points to an industry-wide problem that is set to reverse two years of falling food prices for British shoppers", say Paul McLean and Scheherazade Daneshkhu in the Financial Times. Unilever is not alone in warning of higher prices as the big four supermarkets are "facing a dilemma about how much of this to pass on to their customers". "What seems beyond doubt, however", say McLean and Daneshkhu, is that British shoppers will be hit with "at least some of the costs" as supermarkets fight to "protect their often wafer-thin profit margins".

By the time the short-lived dispute was resolved on Friday, Tesco was the FTSE 100's highest climber, while Unilever languished near the bottom, after almost £3bn had been wiped off its market value. Early this week, Unilever had recovered somewhat, but was still down by almost 7% on the previous week. Tesco shares had fallen by 1%, with the FTSE 100 down by 1.5%.