The opening salvos when the UK’s largest grocer and one of the world’s largest manufacturers go head-to-head over price rises are being played out in a very public way. This is quite unusual.
Tesco’s ability to make profits by squeezing suppliers is almost legendary. But now Tesco is trying to be seen as a consumer champion by rejecting the demands of Unilever and is part of the way trying to rebuild trust with its customers. Squeezing suppliers is a tactic that has been used by large retailers in the past, but it is an unusual event when there is such a public display of aggression. What this will do is send shock waves through other suppliers, particularly small ones who have little room for manoeuvre when trying to absorb raw materials price rises.
The issue of whether Tesco’s customers will divert their spending because some niche brands are not available is a calculated gamble by Tesco, but they must be pretty sure that customers either won’t defect to other retailers or, if they do vote with their feet, that the loss will be bearable. A more likely scenario is that Unilever will buckle and agree to keep any price rises to a minimum. At the end of the day everything is negotiable.
What today’s news begs is a bigger question as to whether brands are that key when the likes of Aldi and Lidl are offering similar quality products at a lower price.