Marmite shortage: Why Brexit just got real for Britons

The grocery chain Tesco is at odds with Unilever over price hikes in consumer goods, leading Tesco to stop stocking some items. The drop in the pound means imported goods are nearly a fifth more expensive.

Alastair Grant/AP
Jars of savory spread Marmite, a brand owned by Unilever, on sale in a branch of Tesco in central London. Britain's biggest supermarket chain, Tesco, has pulled favorite products from its website amid a dispute with consumer goods giant Unilever.

Britons’ love of Marmite is legendary. But Brexit means their access to the thick concentrated yeast extract spread just became uncertain.

The grocery chain Tesco is no longer stocking Unilever products – including everything from Ben and Jerry’s ice cream and Hellmann’s mayonnaise to Persil washing powder and Dove shampoo. The move, which has seen the goods removed from Tesco’s online site and supplies dwindling in-store, is part of a standoff between the grocery chain and its biggest supplier. Unilever proposed price raises averaging 10 percent across their product range.

For Unilever, the decision to raise prices was driven by falling profit margins. The pound has dropped by almost a fifth against the dollar and the euro since the Brexit vote in June, meaning that products imported from elsewhere now cost more. But Tesco, which is engaged in an ongoing price war in the intensely competitive British grocery market, would prefer not to raise prices on its shoppers.

It’s a debate that affects all British retailers and suppliers, according to Bernstein analyst Bruno Monteyne. “While politicians can deny reality, a shampoo produced on the continent is now 17 percent more expensive,” he said to The Wall Street Journal.

Are there alternatives to the price hike? Over the past two years, food prices in Britain have dropped steadily, as the four main grocery chains compete for customers in a landscape that also includes popular discount supermarkets like Aldi and an emerging online grocery market. As a result, retailers’ profit margins are already thin, making it hard for them to protect consumers against price hikes.

With that in mind, the price rises Unilever has instituted “are substantially less than we would need to cover the impact on our own profitability,” Graeme Pitkethly, Unilever chief financial officer, told The Wall Street Journal. He explained that the company aims to balance profit with affordability for customers. Keeping goods affordable makes it less likely that customers will trade down to cheaper brands, he said.

Unilever has said it expects the disagreement to be resolved soon, a position supported by analysts. But it may be a taste of what is to come. The British Retail Consortium (BRC), a trade association for British retailers, emphasized Monday that any potential Brexit deal must focus on getting a good deal for consumers.

If Britain fails to strike a deal with the European Union and reverts to WTO trading rules instead, prices would increase across the board, the BRC told Trade Secretary Liam Fox in a letter. Meat tariffs could be as high as 27 percent, and tariffs on clothes 16 percent. Retailers cannot absorb the price increases, the retail governing body warned. That means any additional costs would have to be passed on to consumers.

Since the Brexit vote, ingredient prices have increased for three-quarters of British food and drink manufacturers, according to a Food and Drink Federation poll, which will likely be seen in higher consumer prices next year.

Chris Haskins, former chair of consumer goods firm Northern Foods, implied that the disagreement over consumer goods could affect government actions going forward.

“The moment the [British] public realizes that there’s a real cost to pay for Brexit, then the government will have to take account of that,” he told the BBC.

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