Brexit price rises could turn consumers to own-label

07-Nov-2016 - Last updated on 08-Nov-2016 at 16:26 GMT

Brexit price rises could make consumers turn to own-label

Food and drink manufacturers’ Brexit-related price rises could turn consumers to own-label brands, says Shore Capital analyst Clive Black.

If price hikes – as seen by Unilever, Birds Eye and Walkers – become the norm, discount stores could see the benefit of consumers moving to own-label products, said Black.

“If double-digit price rises highlighted in the trade press from Birds Eye, PepsiCo (Walkers) and Unilever (Marmite) were to be the norm, then expect a major negative consumer reaction,” said Black. “[It] will probably lead to trading down, a switch to [own-label] and a strengthening of the discounters.

‘Major negative consumer reaction’

“Accordingly, we sense a balance will be struck between reacting to inflationary pressures through productivity and product engineering and absorption by suppliers, retailers and shoppers alike.”

Several food manufacturers have raised their prices over the past month, blaming the weak pound resulting from the EU referendum. The devaluation of sterling mean imports become more expensive for manufacturers, presenting them with “considerable” cost pressures, Black said.

“Clearly, where inputs are imported, the cost pressures will be greatest,” he said. “Equally so, the supermarkets – particularly those sleeping at the wheel in times gone by when they allowed too much inflation through, so providing the free lunch to the discounters – will also be highly tuned to the cost pressures in the system.”

‘Sleeping at the wheel’

Manufacturers Walkers and Birds Eye were the latest to raise their prices due to cost pressures. Walkers raised prices by up to 10%, while some Birds Eye product prices were raised 18%.

Unilever raised its prices by 10% last month as a response to increasing import costs – a price hike that was subsequently rejected by Tesco, which removed Unilever products from its website until the two firms came to an agreement on prices. Nestlé said it might have to raise its prices too, after dropping its annual growth forecast.

Meanwhile, the pound rose in value to a four-week high after the High Court’s ruling on Article 50 last week. The court said Article 50 could not be triggered – and therefore the UK couldn’t leave the EU – until Parliament voted on beginning the process. Subsequently, the pound rose to 1.249 against the US dollar.