Price rises help Unilever top sales forecasts but spark Tesco row

13 Oct, 2016 1:17 pm

LONDON – Price increases at Unilever, which have sparked a row with British supermarket Tesco, helped the maker of Ben & Jerry’s ice cream and Dove soap report a smaller-than-expected slowdown in third-quarter sales on Thursday.

Unilever said it was on track to meet its full-year targets, but the results were overshadowed by the dispute with Tesco which has pulled dozens of the company’s brands from its website, including popular products such as Marmite and PG Tips tea bags.

In Britain, one of the home markets for Anglo-Dutch Unilever, it is grappling with the fallout of the vote to quit the European Union, which caused a steep drop in the pound.

Unilever has been trying to raise the prices it charges Britain’s big four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – across a wide range of goods by about 10 percent, saying it needs to offset the higher cost of imported commodities, two people with knowledge of the situation told Reuters on Wednesday.

Chief Financial Officer Graeme Pitkethly told Reuters that devaluation-led price increases were normal, but declined to comment specifically on the row with Tesco.

A survey published on Wednesday said more than two-thirds of British food makers have become less confident about the business environment since the Brexit vote.

Three-quarters of British food manufacturers have seen an increase in the price of imported ingredients due to the fall in the value of the pound since the vote, and 63 percent reported a decrease in profit margin, according to the poll by Britain’s Food and Drink Federation (FDF) between Sept. 16 and Oct. 7.

Unilever’s Pitkethly was speaking after Unilever posted underlying sales growth of 3.2 percent for the latest three months. Analysts on average expected growth of 2.9 percent, according to a company-supplied consensus, a slowdown from 4.7 percent in the first half of the year.

The company in July flagged a worsening of performance, due largely to tougher comparisons with an unusually strong third quarter last year and deterioration of economic conditions in markets such as Brazil and Argentina.

Devaluation of a range of currencies in Latin America has led Unilever to raise prices, which in turn, has curbed demand, while many mature European markets continued to see deflation, fuelled by intense price competition between retailers.

In the third quarter, sales volume, or the amount of goods sold, fell 0.4 percent, but pricing was up 3.6 percent. Pitkethly said the company was on track to meet its full-year goals, which call for sales to grow 3-5 percent, with margins improving in the historical range of 0.3-0.4 percentage points. -Reuters

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