tutor2u | Monopoly versus Monopsony as Unilever takes on Tesco

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Monopoly versus Monopsony as Unilever takes on Tesco

Geoff Riley

13th October 2016

This is a battle between Britain's biggest food retailer and one of the world's largest consumer products manufacturing businesses that has economics teachers salivating!

In what has been dubbed the "Marmite War", Tesco has pulled many Unilever products from their online store over a dispute about raising prices. Products such as Marmite, Ben and Jerry's ice cream, Flora and Persil are no longer available because Unilever is pushing for 10 per cent price rises across the board to cover the rising costs of imports following the depreciation of sterling since June 2016.

A lower pound makes import prices more expensive in £s but Tesco is reluctant to raise their prices because of increasingly fierce competition with discount retailers such as Aldi and Lidl.

Retail profit margins have been squeezed over recent years and Aldi and Lidl have more products supplied under a private label and they source more of their processed foods from within the UK. They concentrate on fewer less well known brands at more competitive prices.

Which business will buckle first? Both Tesco and Unilever have significant market power and the likely outcome will likely be a trade-off between the two corporate giants. Price rises are inevitable when the exchange rate falls by more than 15% but not all of the (anglo-Dutch) Unilever's products sold in the UK are produced in overseas countries. Unilever's profit margins are also quite small. What we are seeing here is a battle for profitability across the supply chain.

Readers will be relieved to hear that I have managed by guarantee enough Marmite to last me for the next ten years by purchasing one jar from my local supermarket.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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