Unilever's demands are driven by adverse currency headwinds

We all knew food price inflation was on the way. What we didn’t perhaps expect was that Unilever - a predominantly ambient and frozen player, with a number of UK manufacturing plants - would fire the starting pistol.

As it happens there were a couple of harbingers in last week’s issue of The Grocer. In our GPI we reported that inflation was back - and surprisingly it had resurfaced in the ambient grocery category with, ironically, Tesco’s ambient price hikes contributing most to the inflationary trend (while fresh produce prices were engineeered in the opposite direction).

We also reported that Tesco’s CEO, Dave Lewis, in negotiating with suppliers over price rises, would take a dim view of suppliers for whom, when the exchange rate “moves in one direction the customer pays for it and when it moves in the other direction, the customer doesn’t get the benefit”. He added: “We would be very challenging with anybody who was thinking of taking an exchange rate move alone to justify a price increase.”

At the time it wasn’t clear who he was referring to (though we had heard rumours from other supermarkets that an unspecified supplier was demanding a 10% price hike across the board). With hindsight it’s obvious it was his old stomping ground: Unilever.

Other supermarket CEOs we’ve talked to this week have effectively confirmed this. “Unilever, who are very profitable, are effectively transferring the currency risk to us,” said one. “They have resisted putting prices down when the market was going the other way, but they can’t have it both ways.”

In other words, they believe Unilever’s crude demand for a blanket 10% price hike is being driven not by crude oil, or other commodities, but by newly unfavourable currency headwinds for Unilever’s euro-denominated stock (after reaping the benefits as sterling strengthened from 2013 until Brexit).

Having said that, there IS inflation in the UK market. Commodity price hikes are already a reality for British suppliers - even, as we report, British-sourced wheat - not to mention fuel prices and increasingly foreign-sourced fresh produce at this time of year. And British-sourced butter and cheese will be next.

So Unilever is really just a warm-up act. Albeit a big one. Brexit has not only divided Britain. It’s going to drive a wedge between supermarkets and suppliers. As one CEO says: “Welcome to Brexit Britain.” Or as another supplier says: “Fun and games await us all I fear.”