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When the British public voted to leave the European Union (EU) no one expected that one of the first real consequences would be a price rise in Marmite, a popular breakfast spread. The threat of a price increase has caused quite a stir this week and was revealed after it was reported in the press that there was a dispute between Tesco and Unilever, owner of the Marmite brand, over a wide-ranging 10% increase in the price of many of the consumer goods giant’s popular branded goods.
Unilever is said to have contacted Tesco as well as other supermarket chains to say that the fall in the pound, which has nosedived since the referendum, was hitting its profitability, giving it no other choice but to pass costs up the supply chain. The demand was met with a firm no from Tesco, which subsequently saw Unilever stop delivering goods to Tesco and for Tesco to remove Unilever products from its online store.
While the dispute has since been resolved, it begs the question about whether the uncertainty and volatility created by Brexit will lead to a wider frosting of relations between suppliers and buyers and perhaps even lead to a return to the dark days of cost cutting?
Procurement functions and their suppliers have worked closely for the last few years to build collaborative relationships that aren’t based around annual cost savings. Instead, relationships have focused on collaboration and finding a win-win situations for both parties.
But the environment in which that was established has now changed. Following the 2008 financial meltdown, it was important for businesses, no matter where they were in the supply chain, to support others. No market was left untouched by its impact. Today, the uncertainty of the Brexit vote and the fall in sterling is hitting those who are based in the UK or buy their goods in sterling. Those outside the UK are suddenly finding things a lot cheaper.
The waters therefore have been muddied and opportunities for individual businesses to make savings on their own have opened up.
Tesco and Unilever may be the first to, publicly, go into battle over prices, but they certainly won’t be the last.
With the UK’s Prime Minister Theresa May set to invoke Article 50 of the Lisbon Treaty in March, which is the official mechanism by which formal negotiations begin over the country leaving the EU, there will be uncertainty to come, especially in the foreign exchange markets. Those negotiations are expected to last a minimum of two years.
Buyers though must remember that there is more at stake than a 5% saving here or a 8% saving there. The value that has been delivered over the last few years from collaborative relationships in terms of new product innovations or more efficient production processes, will be lost and potentially lost forever.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.