Tesco and Unilever row over price rises are a sign of things to come

Emma Woollacott
A pot of Marmite
A pot of Marmite

Tesco is running out of dozens of brands, following a row over prices with supplier Unilever - and experts are warning that this could just be the start.

The supermarket is refusing to agree to a 10% price rise from Unilever, which the Anglo-Dutch firm says is necessary to compensate it for the plummeting value of the pound - down 19% against the dollar since the Brexit vote.

As a result, all orders are off. Tesco's website is no longer stocking brands including Marmite, PG Tips and Persil washing powder, and stores are rapidly running out.

While some of the products - Marmite, for example - are made in the UK, Unilever has chosen to increase prices equally across the board, rather than calculate them individually.

However, it has pointed out that the price rise is 'substantially less' than it needs to cover its own costs, and claims other retailers have accepted it.

And it's not the only supplier to be trying to compensate for the fall in the pound. A survey released by the Food and Drink Federation earlier this week shows that, since the vote, most food and drink companies are seeing the price of ingredients rise and product margins fall.

As a result, says Laith Khalaf, a senior analyst at financial services firm Hargreaves Lansdown, the spat is likely to be the first of many.

"This kind of friction is an inevitable result of the unstoppable force of higher import costs hitting the immovable object of UK retail pricing," he says.

"That makes things look pretty ugly for retailers, who face an extremely competitive pricing environment, along with the challenge of adapting to changes in consumer behaviour driven by the digital revolution.

"It also doesn't bode too well for consumers, who may soon face higher prices if retailers can't entirely defray the higher costs of imports."

Retailers will no doubt do their best to absorb price rises themselves, but their margins are already low. Many hedged their bets by buying up euros before the vote; but the effects of this won't last for long.

And if the UK fails to strike a good Brexit deal by 2019, prices could shoot up still further under World Trade Organisation rules.

The average duty on meat imports could be as high as 27%, while clothing and footwear would attract tariffs of 11-16% versus the current zero-rating for all EU imports.

Even non-EU imports could get more expensive, with the British Retail Consortium warning that, for example, the import cost of women's clothing from Bangladesh would be 12% higher, and Chilean wine 14% more.

Lord Haskins, the former head of Northern Foods, told the BBC's Newsnight programme last night that the falling pound means that even discount supermarkets such as Aldi will have to increase prices over the coming weeks and months.

"They will have to follow suit, because the costs as a result of devaluation are too big for any company to carry," he said.

"The moment the great British public realises that there's a real cost to pay for Brexit, then the government will have to take account of that."