Irish supermarkets feeling the pinch of Brexit battles

Last week, we were treated to a brief autumnal clash of antlers between two very big corporate beasts, Tesco and Unilever.

Blood was about to be shed, but then the horns were stood down and by Friday morning, a settlement between the parties had been reached.

So was this the case of handbags at dawn, a bit of a damp squib, or perhaps the start of something rather more serious?

The skirmish took place in Britain, but with some apparent spillover effects into Ireland with the supermarket chain, SuperValu, warning that the Anglo-Dutch branded goods giant was seeking to impose price increases in this jurisdiction.

People were left scratching their heads. Unilever justified its move on the basis of a depreciation of more than 15% in the value of sterling, yet appears to have sought to apply increases south of the border in the Republic whose currency has actually been appreciating in value.

Unilever has stated that it is not seeking to apply an increase, overall, across its product range in the Republic.

Some supermarkets, here, believe that if Unilever is to be consistent, it should, in fact, offer reductions, given the rise in the value of the euro.

Alarm bells were set ringing on Wednesday after word emerged that Unilever was seeking to implement an increase of 10% in the price of key brands being supplied by it into the British market.

Tesco, in what could be viewed as clever public relations, was refusing to accept the increases, with the result that products such as Marmite and Ben & Jerry’s ice cream, all part of the Unilever portfolio, began to disappear from the shelves at Tesco.

Tesco expressed surprise at Unilever’s aggression.

Ironically, its recently appointed CEO, Dave Lewis, spent 27 years at Unilever and so must know a thing or two about that organisation.

That Unilever should have attempted such a manoeuvre is a reminder that the large retailers do not always hold the whip hand and that in some areas, the balance of power has actually shifted back in favour of manufacturers, particularly those supplying a range of large brands.

While the discounters have carved out a large share of the market, some brands have continued to build up a large following.

Unilever enjoys profit margins of just under 15%, whereas margins in grocery retailing are considerably tighter - less than 3%, in the case of Tesco.

According to Gillian Hamill, editor of Shelf Life, Unilever’s trump card is the brand power of household names like Marmite, Pot Noodle and Ben & Jerry’s.

Dermot Jewell of the Consumers’ Association argues that a “lot of posturing” is going on, with companies like Unilever able to say to shareholders: “We tried.”

He does expect, however, that other major brands will seek to raise further their return on capital through more subtle means, by, for example, reducing the size of products.

Ireland could be viewed as being ‘at the end of the line’.

However, the presence of discounters has proved a game changer for consumers, particularly the savvy younger cohort.

Unilever has been a remarkable success story since it emerged, in September 1929, as the product of a merger between the British Plc Lever Brothers and Dutch company Unie.

Lever Brothers developed on the back of soap products, with founder William Hesketh Lever producing one of the great corporate mission statements, arguing that his goal was “to make cleanliness commonplace, to lessen work for women and to contribute to personal attractiveness”.

Unilever has always had its pious side. That comes from the philanthropic Lever Brothers’ end of the business.

A former CEO, Limerick-born Niall FitzGerald, has been vocal about the group’s commitment to Third World development and sustainability.

The current CEO, Dutchman Paul Polman, has been equally vocal on the need to ensure that the firm’s products are environmentally sustainable. He has also pushed hard to expand Unilever’s reach into emerging markets.

However, the economic troubles in regions such as Latin America have put a question mark over this strategy and some wonder if consumers in established markets are now being asked to pick up the tab.

According to the Guardian’s Nils Pratley, “Unilever is trying to milk the great British shopper to fund its expansion”.

A more prevalent and logical view is that last week’s attempted price hike is a sign of things to come, and simply the natural consequences of a devaluation in the pound, an inevitable process which looks set to erode household living standards.

Brexit or no Brexit, such a devaluation was inevitable, given that the UK is running a deficit on its balance of payments of over 6%. It needs to rebalance its economy, and do so fast.

This process could speed up following the US elections and a likely hike in interest rates by the US Federal Reserve.

In recent weeks, growing evidence that the UK Government is preparing for life outside the common market as well has caused further ructions.

For Ireland, the prospects are indeed ominous.

An obvious temptation for Downing Street is to go for crowd-pleasing trade deals with major food supplier countries such as Australia and Brazil.

The UK has long favoured a cheap food policy over the protection of its farmers, let alone Irish farmers.

Such deals would allow consumers to offset some of the negative effects of the hard Brexit that could be on the way.

The Marmite saga is simply part of something that is far bigger. Irish suppliers will have to brace themselves for difficult times.

As suppliers of overseas’ sourced brands implement price increases, the temptation will be to put an even bigger squeeze on less powerful suppliers.

Farming organisations like the IFA are pressing the Government to secure a relaxation in the State-aid rules in Brussels with the aim of giving the food sector here the means to start building defences against the gale that could be on its way.

Special pleading is common around the time of the budget, but just because the boy has cried wolf in the past does not mean that right now, the beast is not lurking outside the door.