It was dubbed Marmageddon: a very public spat between two of the giants of the grocery business – Tesco and Unilever – that saw the supermarket giant refuse to accept price rises on hundreds of Unilever products and that resulted in Marmite disappearing from Tesco’s shelves and website.
But on Friday it appeared that while Unilever might have lost that battle, it has won the war – because smaller supermarket chain Morrisons has now hiked the shelf price of the very British toast-topper by 12.5%, setting off new fears about food price rises in the wake of the Brexit vote.
Marmite has become an unlikely symbol of the industry-wide battle over price increases caused by the 14.5% drop in the value of the pound against the euro and 18% against the dollar since the UK voted to leave the European Union. Manufacturers’ costs are rising as they are forced to pay more to import goods, ingredients and packaging, and they are trying to pass some of that on to their retail clients.
Unilever, one of the biggest suppliers to British supermarkets, has been trying to increase the price it charges for brands including Ben & Jerry’s, Persil and Pot Noodle by an average of 10%, blaming the slide in sterling. The move ran into controversy as most of the affected products are made in Britain. Marmite is 100% made in Burton upon Trent, and uses ingredients from the UK.
After the public row with Tesco two weeks ago, the UK’s biggest supermarket chain is believed to have reached a compromise on price increases, agreeing average price rises of less than 5%. Sainsbury’s is understood to be still in talks, while Asda is thought to have brought in parent company Walmart, the world’s biggest retailer, to add muscle to its negotiations.
The Bradford-based Morrisons chain, however, appears to have given in to Unilever’s demands and is now charging £2.64 for a 250g jar of Marmite, up from £2.35 previously.
A spokesman for Morrisons said: “Sometimes we have to increase prices as a result of costs rising although we do our best to avoid this.”
In the past two weeks, 92 of the 228 Unilever food lines stocked at Morrisons have gone up in price, while only 19 have been reduced, according to the Grocer trade journal, which cited data from market analysis firm Brand View.
Bryan Roberts, a retail analyst at TCC Global, said suppliers were facing huge increases in costs on items such as packaging and all kinds of ingredients, from spices to fruit and vegetables, as the pound had fallen in value.
“The writing is on the wall. Price increases have happened and will continue to happen across the board. Exchange rates are hammering everyone,” he said.
One source said that Morrisons had no choice but to pass on price rises from Unilever to shoppers. Other industry insiders suggested the supermarket was making a political point – trying to highlight the pressure from Unilever by raising prices significantly on one of its most high-profile brands.
Such was the furore over the pricing spat with Tesco that sales of the spread soared 60% at the major supermarket chains in a spate of panic buying by fans, according to industry data analysts IRI.
In a publicity stunt, Asda cut its 250g Marmite price to £2. Tesco and Waitrose have so far kept their prices at £2.35 and Sainsbury’s has not moved from £2.50.
UK consumers have been told to brace themselves for price rises in the coming months. A number of suppliers are understood to have approached supermarkets asking for cost increases to be covered. Earlier this month, KitKat owner Nestlé also admitted that prices were likely to have to rise.
On Friday, Somnath Saha, chief executive of Typhoo, told the BBC tea prices are set to rise. He said the firm’s costs had gone up by between £250,000 and £300,000 a month and “unfortunately the cost of a cup will go up”.
He said the tea firm’s profits would take a hit: “In a year’s time there will be an impact of £3m on our bottom line. How can we sustain that? It is affecting us really badly. We are trying to do as much as we can to mitigate this cost but we are coming to a position now that costs need to be passed on.”
Justin King, a former boss of Sainsbury’s, warned earlier this month that supermarkets could not absorb cost increases caused by the falling pound and that price rises were inevitable.
However, supermarket bosses have said that they will try and protect shoppers from price rises, not least because they face rising competition from discount chains Aldi and Lidl, which undercut them on many basic goods.
Most retailers buy their currency well in advance so that it will take time for foreign exchange rate changes to feed through. They are also benefiting from commodity price falls in some areas that are helping to offset the fall in the value of the pound.
Tough competition from the discount chains has been driving prices down but there are signs the deflation is coming to an end. Market research group Kantar Worldpanel said grocery prices fell by an average 0.8% in the three months to 9 October, but this was the smallest drop in nearly two years.
