The Unilever boss has defended the multinational’s decision to raise the price of Marmite, saying many other suppliers have followed suit with price rises or by reducing the size of products in response to the weakening pound.
Tesco, Britain’s biggest retailer, removed Marmite and other household brands made by Unilever from its website last October, after the manufacturer tried to raise its prices by about 10% owing to sterling’s slump after the Brexit vote.
Tesco and Unilever resolved their dispute, but the price of Marmite has been sharply increased in UK supermarkets.
Paul Polman, chief executive of Unilever, said the decision to raise prices was “definitely the right one” given that sterling fell against the dollar by up to 20% last year.
He said Unilever, which also makes household brands such Flora margarine, Magnum ice-cream and Dove soap, had to balance “value for money” for shoppers with “long-term” factors.
Polman added: “That is true for us and true for others, otherwise you end up being unsustainable.”
The Unilever boss said that since the company increased prices many other items – including own-brand supermarket products – had risen in price or shrunk in size, a process known as “shrinkflation”.
Polman was speaking as Unilever reported revenues had fallen by 1% to €52.7bn (£44.9bn) in 2016.
Although underlying sales rose 4.3% at constant exchange rates, a negative currency impact of 5.1% dragged down revenues. However, pre-tax profits for the year rose 3.4% to £7.5bn.
Polman said that 2016 had been an “unpredictable year” but that Unilever had “demonstrated resilience”. Sales rose by 6.5% in emerging markets, driven by Asia and Latin America, but developed markets dropped by 0.2% as a rise in the volume of products sold in North America was offset by price deflation in Europe.
As well as the impact of Brexit and the fall in the value of sterling, Unilever was affected by the economic crisis in Brazil and the removal of 500 and 1,000 rupee notes from India.
Analysts said Unilever’s track record suggested it should be able to withstand the economic and political headwinds.
George Salmon, analysts at Hargreaves Lansdown, said: “Weaker than expected sales growth, depressed by a disappointing performance in Europe and Latin America, isn’t good news, but the group’s longer-term record shouldn’t be hastily discarded.
“Unilever has been able to deliver solid, if not spectacular, growth in margins, sales and dividends for years. Much of this can be attributed to its €8bn advertising budget, which funds the relentless promotion of its everyday products, and helps to ensure its products feature regularly on consumers’ shopping lists, regardless of regular price increases.
“‘Marmitegate’ highlights the strength of this strategy. For all the bluster that accompanied the story, it’s worth remembering that the net effect of the dispute with Tesco was a chunky increase in prices. In all but the very worst of conditions, Unilever should be able to keep its growth going.”
Unilever shares fell by 5% to £31.89 after it revealed a slowdown in sales in the fourth quarter of 2016 and Polman warned of a “slow start” to 2017.
Underlying sales – which exclude acquisitions, disposals and currency movements – rose 2.2% year on year in the final three months of 2016. Not only was this below the 3.7% for the full year, but the volume of products sold by Unilever dropped by 0.4%.
“Our priorities for 2017 continue to be volume growth ahead of our markets, a further increase in core operating margin and strong cash flow,” Polman said.
“The tough market conditions which made the end of the year particularly challenging are likely to continue in the first half of 2017. Against this background, we expect a slow start with growth improving as the year progresses.”
