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October 18, 2016

Pegler’s market report – 18.10.16: Tesco and Unilever spat creates Marmitegate drama


in Insights Press Releases

As published in the Brighton Argus (18.10.16) Business on page 21 under the title Pegler’s Market Report:

Pegler's Market Report

Tesco and Unilever spat creates Marmitegate drama

You may either ‘like it, or hate it’ but Marmite has made an unlikely stir on the markets this last week. The rush to buy limited stock of Marmite came after Unilever’s finance chief admitted that the prices of its popular products will rise as a result of the collapse in pound, a day after the firm was accused of “exploiting consumers” following a row with Tesco. In one of the first clear signs for of post-referendum turbulence, Britain’s biggest supermarket chain delisted dozens of Unilever brands from its website, as the pair clashed over pricing. Both heavyweights witnessed significant weakness in their share prices. However, analysts generally agree that the Tesco-Unilever spat provides good PR for Tesco and highlights the supermarket giant’s strength in negotiations. Tesco was also cited as the consumer champion – fighting to keep prices low for shoppers.

Unilever’s dispute with Tesco has highlighted the fact that imported goods have become more expensive as a result of the weaker pound. Will this start to be reflected in consumer inflation (CPI) figures for September, published later today by the Office for National Statistics? Last Friday, Mark Carney, the governor of the Bank of England, warned that inflation will rise on products such as food because of the drop in the value of the pound, but that the weaker currency “helps the economy adjust”. It is “going to get difficult [for those on the lowest incomes] as we move from no inflation to some inflation,” he said.

Moving away from Marmitegate, Sports Direct’s acting chief financial officer, Matt Pearson, has resigned adding to the beleaguered retailer’s financial woes. His exit comes just days after a sharp tumble in the value of sterling forced Sports Direct to slash earnings forecasts for next year by another £35m. Last week, the pound fell nearly 6pc against the dollar in the space of a couple of minutes. This triggered Sport’s Direct’s hedging arrangements, which were supposed to protect a business against volatile currency prices. The plunging pound resulted in an immediate £15m loss for the company. In addition, it said it might lose another £20m if the pound averages $1.20 over the financial year.

The drop in the value of the pound has at least helped boost tourism to the UK in July.  According to the Visit Britain tourism group, the UK had 3.8 million visitors in July, of which 2.3 million were from the EU. Hopefully good cheer for Brighton’s tourist industry.

Elsewhere in Asian markets, China’s September exports fell 10pc from a year earlier, far worse than expected, while imports unexpectedly shrank after picking up in August, suggesting signs of steadying in the world’s second-largest economy may be short-lived.

By David Pegler, Brighton Capital Management

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