Unilever just created a Brexit Scare.
Saying its commodity prices are rising while the pound sterling is sinking, Unilever wants to charge 10% more. Britain’s largest supermarket chain, Tesco, is resisting.
At first Tesco removed many Unilever products from its website. The list included Hellmann’s mayonnaise, Knorr soup cubes, Dove shampoo and Pot noodles.
Marmite though created the panic. A sticky black substance that is made from slurried yeast (an inexpensive beer making byproduct), Marmite is either loved or hated.
When consumers saw their bread spread was gone from Tesco’s website, they emptied the shelves at local retail outlets. Like a bank run, the prophecy was self-fulfilling.
An almost empty store shelf:
Twenty-four hours after their food fight began, Tesco and Unilever said it was over. The lingering question though involves Brexit. Although Great Britain’s EU exit negotiations have not formally begun, a Unilever price hike was enough to create a Brexit scare.
Our Bottom Line: Elasticity
Most of our our buying behavior is elastic or inelastic. It all depends on price.
Our demand is elastic when we buy lots less because of a price hike or much more when price falls. But our buying behavior is inelastic if we stick with a good or service as prices fluctuate.
For Unilever, I suspect that the impact of a 10% increase would depend on the product. After all, people could just switch to Häagen Daaz when the price of Ben & Jerry’s went up.
However…
Hearing that Marmite is a beloved British toast topper, I would place it in inelastic territory. As a result, would a 10% increase make a difference?
My sources and more: Because each article on the Tesco Unilever standoff had a new and interesting fact, I recommend looking at FT and the Guardian, the Telegraph and WSJ.
