Tesco and Unilever shares tumble as price row takes its toll

Other supermarkets are also suffering from the fallout.

The dispute between Tesco and Unilver has hit the companies' share prices (Reuters)

Tesco and Unilever shares fell on Thursday as a bitter pricing dispute began to take its toll. The supermarket chain’s stock was down 2.3 per cent in morning trading, while Unilever lost 2.5 per cent, despite announcing sales growth earlier this morning.

Sainsbury’s and Morrisons shares also fell, as the collapsing value of the pound increases import costs and further squeezes margins for UK supermarkets who are already embroiled in a ferocious price war with discount chains.

Dozens of iconic brands including Marmite, Pot Noodle and PG Tips began to disappear from from Tesco shelves this week after Unilever hiked its prices by 10 per cent and the supermarket chain refused to pay.

According to Unilever, the increases are required to absorb the exchange rate moves since the Brexit vote, which has made its brands, many of which are produced overseas, more expensive.

Tesco has said that such a rapid rise amounts to “exploiting consumers”, pointing out that the increases also apply to UK-made goods.

Laith Khalaf said the post-Brexit vote outlook for retailers is now “ugly” and warned that the Tesco-Unilever spat was “only the thin end of the wedge when it comes to UK retailers and their suppliers”.

Roy Williams, managing director of supply chain firm Vendigital, said: “Retailers are of course facing their own cost pressures amid tough competition from low-cost retailers such as Aldi and Lidl. Naturally, they are going to be reluctant to pay suppliers more without understanding more about how exchange rates have impacted the cost of specific goods.”

However, Williams said it is Unilever that is now “on the back foot”. The consumer products giant “will need to work hard to re-open negotiations in order to achieve satisfactory terms,” he said.

Tesco has recently focused on cost-cutting across the board rather than promotions, as it tries to turn around its business after slowing sales growth and an accounting scandal.

Philip Benton, retail analyst at Euromonitor, said cost-cutting was central to Tesco’s recovery, and “must be maintained to help rebuild its image”.

Despite the row with one of its biggest customers, London-based Unilever today announced its total sales were up 3.2 per cent.