Tesco reasserting its leadership

There was a very public spat between Tesco and Unilever in Mid-October. It did not last long and within 24 hours it had been resolved. Quite why Tesco decided to go public is the theme behind this comment. It certainly put Tesco in a good light, posing as a consumers’ champion.

Unilever wanted to raise its prices by 10% across the board in response to the weakness of sterling. Tesco objected, though it wasn’t specific about quite what it was prepared to accept and we don’t know what the final deal was. It looks to us as if Tesco’s main objection was that the rises were too much, too soon, and should not have affected all products equally.

Battle of wills

So what we saw was a battle of wills. Would Unilever suffer more without Tesco than Tesco would without Unilever? That battle has been going on since multiples started to develop at the end of the 19th century. But given the dominance of Tesco in the UK market could Unilever really afford to turn its back on it. Tesco could reasonably point out that it stocked many other brands and would have good own brand alternatives as well (though perhaps not for Marmite).

Given the speed with which the compromise was reached, it looks as if that question is left unresolved.

Leadership

But there's another side to it that is very encouraging both for Tesco and the food retailing sector. This whole spat shows that Tesco is prepared to lead the food retailing sector again. It is easily the largest retailer in the sector and it has been very low key while Dave Lewis has effected a remarkable turnaround. But by taking this very public stand Tesco sent a signal to the rest of the sector to follow its lead. Only Tesco could have done this but by doing it, it invited the other majors to follow and if they had done, then Unilever would have lost not just Tesco, but the rest of the UK food retailing sector as well.

PR

One cannot ignore the fact that in posing as a consumer champion Tesco also gained valuable PR and in doing so it stole a lead on its competitors. Asda's constant focus about prices seems to be being counterproductive. But here Tesco is seen to be standing up to one of the major forces in the industry in a way that will strike a chord with consumers.

Brexit concerns

Mintel's research shows that the biggest consumer concern about the impact of the EU vote is that it will increase the cost of living. Our September data shows that 39% think it'll have a negative effect, compared to 23% who think it'll be positive. This story is so high profile and affects so many iconic brands that it can only re-enforce those fears.

Where next?

In the longer term, Tesco cannot win this battle. A depreciation of sterling on the scale that we have seen must have a significant impact on imported costs. Most retailers and manufacturers should have covered most of the currency exposure forward. So we would not expect to see any significant impact this side of Christmas. It is next year that the real impact will be felt.

The significance of Tesco's stand is that it is reasserting its role as the leader of the sector. That is just further evidence of the success of Dave Lewis (who came from Unilever) and his team in turning the business around, restoring its credibility and restoring customer trust.

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