I was reminded of above adage when reading recently about the contretemps between Tesco and Unilever about cost and payments. Tesco is the largest supermarket group in the United Kingdom. Unilever is one of the largest consumer brand companies in the world: with over four hundred brands and fifteen of them generating revenues over £1 billion annually. A clash of the titans, you might say.

Ostensibly the dispute was over cost. Unilever raised the price of its products by around ten per cent in response to a sharp decline in the value of sterling in September (largely caused by post-reaction to the decision of the UK as a result of the referendum on July to pull out of the European Union).

Unilever argued that the value of the pound had dropped by as much as nineteen per cent and they had no option but to recoup their potential losses because it was more expensive now to produce and import their products.

Unilever’s most popular brands include the following: Marmite, PG Tips tea, Colman’s Mustard, Dove, Bactolli Spreads, Comfort Fabric Conditioner, Hellmann’s Mayonnaise and Ben & Jerry’s ice cream: all of them in high demand and favoured by many shoppers in the UK market. In total it supplies over eight hundred products to Tesco. Consequently it can legitimately be described as being a supplier of major and strategic value to Tesco. To reinforce the importance of the Unilever brands research has shown that any one of its brands can be found in the kitchens and fridges of ninety-eight per cent of the UK’s households.

The media in the UK had tended to play down the adverse potential effects of a Brexit exit. The Unilever dispute brought the topic of a decline in the value of sterling to the fore. Widening out the discussion on this dispute to the impact arising from the impact of increasing inflation served to concentrate the minds of shoppers over the past few weeks.

I read the subsequent playing out of the dispute with interest as I feel it provides some interesting insights into the nature of retailer and supplier relationships which we discuss in detail in the text. In particular it highlights the feral nature of such relationships and reveals the psychology that is used by both suppliers and retailers when dealing with that most critical of all topics: pricing and costs. Let’s develop this further.

Prices rise and go down over a prolonged period of time. It is in the interest of retailers to protect their margin and hence profits. They do this by making decisions on what prices to charges and balancing that against their ability to manage margin. They could pass on the full increase to the shoppers or they could take a hit and absorb some of the increase. Indeed many retailers have to do this in order to avoid a sharp drop in sales and revenue.

Suppliers, when hit by cost increases (in this case as a result of the decline in sterling) have a couple of options. They can pass on the full extent of the price to the retailers or they can absorb part of the increase in the cost increase and hope to recoup it over time or cross-subsidise the loss from other brands in its portfolio.

It is difficult to be sure of what happened in the Tesco and Unilever dispute because we (and the media) are not privy to the exact increase that was demanded by Unilever or the increase in costs which they are experiencing as a consequence of the decline in sterling.

So what would happen if they were to hypothetically increase prices in this case by ten per cent? They would most likely face extensive negative publicity in the general and social media from shoppers and (unless competitors followed suit) would conceivably lose market share. It would be very unlikely that a retailer with the dominant position that Tesco holds, would pursue such a strategy.

Apart from the consequences in the preceding paragraph, it would be perceived as having caved in” to a dominant supplier and this would send wrong signals to all of the key stakeholders: shareholders, shoppers and the media. It would also signal that the power-dependency position very firmly rests in the hands of large suppliers.

To reinforce the dangers of total capitulation to suppliers; the “big four” supermarkets in the UK have focused on price decreases in the past couple of years. This is mainly due to strong and sustained competition from discount operators such as Aldi and Lidl and also to try and retain customers and encourage them not to defect to other competitors.

So what did happen?

The media (both general, social and business) portrayed the dispute as a “head-to-head” battle – based on the adage that “he who blinks first loses”. However in my view this is not an honest or accurate picture.

In fact the “sub-text” behind this battle was about reaching a compromise position with respect to the price increases. In all effective negotiations each party will start with a figure that they know cannot really be reached. Each party will also have an acceptable figure below which they will not go but will be prepared to coalesce around in order to achieve a degree of satisfaction.

In this case Tesco came out fighting through its public relations activity as “the people’s champion”. It removed a number of products (de-listed) from the shelves and the online channel – thereby signalling an aggressive “no holds barred” approach to Unilever. By leaking their decisions to the press they immediately captured the “moral high ground” in the eyes of shoppers. They also countered Unilever’s claims for a ten per cent increase by stating that many of the brands were produced in the UK and therefore were not exposed to the vagaries of currency fluctuations.

Arguably Tesco was also in a stronger position to do battle with a supplier such as Unilever by virtue of its size and scale of operations. Some of its struggling competitors would not have sufficient ammunition at their disposal to take on such a dispute.

Unilever was never going win the publicity argument. Any company that proposes increases automatically attracts the wrath of the majority of customer (many of whom do not, or do not want to understand the complexities of currency movements).

As well as some of its brands being produced in the UK, Unilever tends to allow its local country teams to make decisions on price – depending on the structure of the market in terms of competition and on customer affordability. This is somewhat at odds with the rather generic and “one size-fits-all” approach to passing on the price increases.

Share prices of both companies dropped in the immediate aftermath of the start of the dispute. Tesco’s shares dropped by three per cent and Unilever’s shares by 3.4 per cent.


After a few days, both sides came to an agreement on the issue of price increases. We again are not privy to the specific outcome: both sides clearly wishing to preserve confidentiality and a “loss of face”.

Rumours suggest that (not surprisingly) Unilever had to give way on the demand of a ten per cent increase. Tesco had to “bite the bullet” and also accept that a price increase of some sort was inevitable.

A cynic (such as me) would strongly argue that this was “much ado about nothing” in the context of it being portrayed as a “defender of the shopper” fighting against an oppressor.

The reality is that over the next couple of years, rising inflation will rise inexorably. Shoppers in general have been exposed to very low (almost negligible inflation for a number of years. Thus it could be argued that their expectation levels need to be changed to make them realise that price increases are and will be back on the agenda in the coming years.

Was this a cynical attempt to “groom” shoppers” to the inevitability of price rises? Yes in my view. What do you think?

In this case arguably the company that blinked first (it could have been either) did not lose.

So much for adages!




Since May 2016 when it became clear that there was little or no hope for the future of British Home Stores (BHS), that venerable British retail brand, the vultures have been lurking. The final stores closed at the end of August and it begs the question as to what happens to all of that physical retail space?

The large pension “black hole” (approximately £600 million) and how the 11,000 employees might be helped in that regard, has captured the main thrust of media speculation. Its previous owner: Sir Philip Green has been castigated for his apparent casual indifference to their plight. Rumours are on-going about various rescue attempts to address the pension issue.

What interests me is what happens next.

Is it likely that anyone will take over this distressed brand and attempt somehow to rejuvenate it? As discussed in one of my earlier blogs on the subject this brand has been faltering and struggling for a number of years. This is partially due to under-investment in the stores and merchandise. A more basic explanation for its struggles lies in its inability to respond to the changing needs of the market – particularly with respect to the lack of distinctiveness of its product range, its “middle-of-the-road” price points and a general dowdiness associated with its physical store formats

Since the announcement of its imminent closure in May 2016, a number of retailers have been rumoured to have expressed an interest in using some of the stores. These include IKEA. In its case it is keen to roll out more of its “order and collection points” and these need to be located nearer to city centre / high street locations in order to appeal to shoppers and workers who wish to collect items that may have been purchased online. This new format also provides the opportunity for shoppers to browse through the electronic version of the catalogue electronically. IKEA can also showcase a limited range of items within the store.

Sports Direct are also rumoured to have expressed some interest in moving into to some stores.

At the end of September a Polish retail brand; Reserved (part of the LPP retail chain) took over part of the 30,000 sq. ft Oxford Street BHS site. It signed a 25 year lease with BHS earlier in January 2016. This is a largely Eastern European operation and operates in eighteen countries with brands such as Tallinder (an upmarket fashion brand) and Cropp (aimed at the young to teenage market). Recently LPP has located outlets in the Middle East (Egypt, Qatar and Kuwait.

While it has a strong presence in countries such as Poland, Russia and the Baltic regions, its long-term goal is to expand its brands across Europe and further afield. The Oxford Street location is seen as an ideal opportunity to showcase the Reserved brand in a prime shopping location in the UK.

It closely resembles Zara and H&M in terms of its merchandise, price points and design. It designs its product range in Poland but the clothing is primarily manufactured in China and India. We will monitor its progress over the coming months here on this blog site.

While the opportunities for a revival of the BHS brand via its physical stores looks remote in the extreme, we should focus more of our attention on the possibilities of brand revival via the online channel route.

This area raises some interesting questions and developments. At the end of September 2016 BHS underwent a relaunch of its online operations. It has identified its target market as the older female (over thirty-five) and who does not have the time to make specific shopping trips to purchase clothing items.

They certainly cannot be faulted for picking up on the inexorable move generally towards shopping online.

It started off with a limited range of items (approximately 500) spread around three categories: lighting, bedroom and bathroom. At the end of October it plans to extend this range to cover Christmas-related merchandise, including a range of hampers and fragrances.

It is further ratcheting up the selection with items in the kitchen and dining categories as well.

It would appear as though it is incrementally widening its product range to become a meaningful player in the online channel sector.

Its new owners the Qatari-based Al Mana Group seems to be determined to resurrect this brand from the grave in an attempt to re-establish it in the minds of shoppers. How difficult is this challenge likely to be? Would it be wiser and less painful to let the brand die gracefully and with dignity? In some ways it is akin to pumping life into a beloved pet that is suffering in its old age.

Undeniably it will be difficult. The BHS brand has suffered over the past fifteen years from a lack of investment in its physical stores. While this alone has damaged the brand, more alarmingly it appears to have lost resonance and relevance with the target market. Its merchandise – particularly in clothing, has failed to keep up with the times and its value proposition became lost in the so-called “new era of retailing”. Relentless negative publicity has not helped either – particularly with respect to the behaviour of its previous owner: Sir Philip Green.

Will its slightly older target market (35+, predominantly female) respond positively to the online offerings?

It can be argued that BHS has one thing in its favour; a residual (albeit relatively small) level of positive perceptions and associations in the minds of its loyal shopper base. A quick review of the media coverage on the BHS demise suggests that there is a lot of sympathy with respect to the overall decline and disappearance of BHS from the high street. Anything is possible – particularly if this level of positivity can be captured and inspired by a relevant product offering on its online channel.

However I would counsel against BHS relying on history and heritage alone in attempting to attract shoppers to its channel. It has to face the challenge of providing a relevant, coherent and consistent value proposition that in some way or other provides a point of differentiation form fellow online and omni-channel retailers that compete in this space. That will not be easy.

All the evidence indicates that breathing life into a dead brand will take a long time. Even brands such as Skoda which were not dead but struggling, took ten years or so to reposition from a “cheap and nasty” car to a mid-range position in the market-place. This happened largely because of the influence and heavy involvement of a successful manufacturer – Volkswagen in key areas such as design and marketing.

Developing a point of differentiation is critical in the chase to be successful once again for BHS. The online channel in fairness allows it to experiment initially with limited ranges so that it can test out designs and price-points with its customers. It avoids the burden of having to maintain and fund a large number of physical stores.

Overall I would have my doubts about its long-term viability. Let’s see what happens over the next couple of years. What do you think?