Since the UK voted for Brexit, the pound has fallen by around a fifth against the dollar and 15% against the euro. The plummeting value of the pound is likely to affect prices on the high street, as companies that import goods from abroad pass on these higher prices to consumers.
Analysts predict this is unlikely to happen immediately as most retailers 'hedge' for several months' worth of their foreign exchange needs. However, as these hedges expire, retailers and brands face a choice to increase prices, and risk losing the custom of a population who are becoming increasingly comfortable buying budget branded substitutes from the discount retailers non-brand, OR accept lower margins on the items they sell.
A balance needs to be found between FMCG brands and retailers as shown by Marmitegate: a day long stand-off between Unilever and Tesco, when superbrands such as Marmite, Hellman's Mayonnaise, Ben & Jerry's ice cream and Dove toiletries were removed from the grocer's website. Eventually a compromise agreement was reached partly due to the fact they are the biggest players in the FMCG and retailer sectors so it was headline news. However, two weeks ago Morrisons raised its Marmite price by 12.5% (not headline news) demonstrating that price increases are a reality.
Unilever has received much criticism because most of the products in question are produced in the UK. It says it uses imported ingredients and packaging, but the lesson must be that price increases need to be handled sensitively. Communications should highlight that there are genuine unavoidable reasons for the price rise and that substitutions don't offer the guarantee of quality that customers favourite brands do.
However, in good news for FMCG brands, analysts say the weaker pound will be most noticeable on more expensive goods, as many people just won’t notice (or are willing to stump up) an extra 30p on the price of their beloved Marmite.
Posted by Ben Marcangelo, Manager, Business Science