As the battle lines are drawn, Dominic Mills looks at the consequences of Tesco’s punch-up with Unilever
Like the rest of the nation, I have been gripped by the Marmite wars between Tesco and Unilever. As most commentators saw it, they were a vivid metaphor for the wider struggles between Leavers and Remainers that are yet to come.
Getting closer to home, I took them as an early skirmish in the upcoming supermarket wars where the main weapons would be price and media spend. To this we can add a third piece of kit: PR.
There’s no doubt the Marmite saga marked an early victory for Tesco. If anything, I was surprised it didn’t keep the PR assault going a bit longer such was the enthusiasm with which the media – mainstream and social – picked up the story and how the weight of popular sentiment shifted towards Tesco.
In one bound, Tesco painted itself as the consumer’s friend, its champion in the fight to keep prices low and stand up to corporate bullies. At the same time, by extension, it painted its rivals as collaborators with those evil bastards (i.e. Unilever) seeking to rip off consumers.
The fact that Tesco, in the not-too-distant past, was itself a world-class corporate bully when it came to beating up suppliers – as much in its own interests as those of consumers – will have passed most of the population by.
I’m told, incidentally, that at least one of Tesco’s rivals had prepared a tactical ad – of the ‘you-can-always-rely-on-X-to-stock Marmite’ type ready to run. The declaration of peace meant that the ad was shelved: what a pity – it would have been fun.
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Still, if the initial skirmish is over, the real supermarket war has yet to begin.
This will play out in several ways. It’s worth remembering too that this will be a three-way fight because the suppliers – i.e. Unilever, P&G, Heinz, Kellogg’s and so on – will inevitably get drawn in, whether they wish to or not.
As the battle lines are drawn then, what are the likely consequences?
– We can expect to see more brand advertising, as opposed to tactical, price-led work, from the suppliers – assuming they are prepared to play the longer game. As effectiveness gurus Peter Field and Les Binet remind us, one of the purposes of brand advertising is to build or maintain price inelasticity – effectiveness speak for persuading the punters that your product is worth a price premium. Given that the price wars are likely to be long and attritional, FMCG advertisers will want to use every tool in their box to protect their margins.
– The slide in sterling – and it feels as though current levels are here to stay for a while – means the likes of Unilever (and the own-label side of the supermarkets) will need to source as much product as they can from the UK and other low-cost (i.e. lower than the Eurozone) countries. This brings the idea of ‘provenance’ into play. Suppliers may need to spend big on advertising to persuade consumers that, hypothetically, British-style camembert cheese or Egyptian strawberries are as good as the real thing even if it is 10% cheaper. Lidl, for example, has already put its marker down in this area with its campaigns pushing British beef and Scottish mussels.
– Where Lidl is going, the other supermarkets will follow. Their advertising will have to use price to drive footfall and share of mind, but also ‘brand’ (in the loosest sense) to preserve their own margins. This is where it might get complicated, at least in terms of the way supermarkets present themselves to the public.
As much as they want to trumpet low prices, they would also be partial to some food-price inflation as a way to sneak in a bit of extra margin for themselves. The last few years of price deflation have played havoc with the supermarkets’ financials, affecting both headline sales figures and margins. A 10% price increase in Unilever products, for example, offers them an underhand way to stick a percentage point or two onto their own margins while at the same time blaming their suppliers.
One of the mysteries of the Tesco-Unilever stand-off is the reaction of Tesco’s rivals. How did they react when Unilever pitched up with its proposed 10% price hike? With a quiet, private, ‘not-on-your-life, Mr Lewis’? Or supine acquiescence? Given that many of Tesco’s rivals – The Co-op, Morrison’s, Aldi and Lidl almost certainly have margins below Tesco’s, you have to wonder.
– Then we have the suppliers’ desire to use technology to disintermediate retailers like Tesco, via the IoT and Amazon’s Dash buttons and Echo gizmos. One contact of mine, well connected with the supermarket world, suggests that Unilever is playing a long game – an ultra-elongated one, I would say – in which its aim is to bypass retailers altogether and that the Marmite stand-off represented a first shot across the bows.
This is certainly a possibility, made real by technology developments, and which will no doubt be accelerated by forthcoming battles with retailers over price. Indeed, in this context, we can see Unilever’s purchase in July of Dollar Shave Club less as a move to take on P&G in the male grooming market and more of a bid to understand a) direct selling of FMCG products and b) the ethos of a consumer goods service company. Both would enhance margins and help cut the Gordian knot that binds FMCG suppliers to retailers.
Those with a historical frame of reference will recall that Unilever has been down this route before in the early 2000s, first with a Mrs Mop-style cleaning and laundry service (using Domestos, Persil etc) called MyHome and Lynx/Axe high-street grooming parlours for blokes.
If you’re generous, you’ll say that both ideas were ahead of their time; if you’re a cynic you’ll say they failed because, as a typical FMCG company, Unilever didn’t get services.
But there is no doubt that, compared to that era, technology has changed the landscape beyond recognition. Things are now possible that simply weren’t before.
The one thing that hasn’t changed is the need for FMCG suppliers to behave like service companies. It’s not impossible – as Nestle has proved with Nespresso – but it isn’t easy.
Meantime, let’s all enjoy the punch-ups.
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