Marmite row – Nick Ferrari demonstrates ignorance of modern business

There’s been a lot of coverage today about the Unilever/retailer wrangle, which has led to some ranges of famous brand products being out of stock on, for example, Tesco’s website. Marmite seems to have been chosen as the leading talking point in this debate. Unilever appear to be asking for increases in prices for their products due to the fall in the value of the pound.

Nick Ferrari was in explosive form about the issue on LBC this morning:

Marmite, for instance, where you suppose that’s made? Burton-upon-Trent in Staffordshire. It can have absolutely nothing to do whatsoever with the state of the pound, foreign exchange, foreign markets or anything. It’s a British product, made by British workers in a British factory, sold in a British supermarket. Marmite.

Shall we try Persil? Warrington. British product, British manufacturers, British factory, British consumers. Again, untouched by the Brexit.

I can go on. Pot Noodle- Crumlin in South Wales. I don’t need to go through the litany again. PG Tips, any guesses? Greater Manchester, absolutely right. Bovril, we go back to that factory in Burton-upon-Trent in Staffordshire.

British products. British workers. Nothing to do with the Brexit whatsoever.

That sounds convincing, until anyone who knows anything about modern business intervenes. As Marketing Week points out, Unilever is headquartered in the Netherlands and reports its revenue in Euros. So revenue from the UK is converted from pounds to Euros before it is reported. It doesn’t take a rocket scientist to work out that as the pound has fallen in value by about 15% against the Euro since the Brexit vote, Unilever are seeing a marked decrease in revenue. Buzzfeed explains other aspects of this issue.

It is perhaps this ignorance of modern business, displayed by Nick Ferrari, for whom I have a lot of time otherwise, which perhaps got us into this mess in the first place.

* Paul Walter is a Liberal Democrat activist. He is currently taking a break from his role as one of the Liberal Democrat Voice team. He blogs at Liberal Burblings.

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  • If I’d known marmite would be the first victim of Brexit, I might have switched to Leave.

    “Vote Leave, Shaft Marmite.” Tempting…..

  • I wonder where Nick Ferrari thinks all the British tea plantations are which he imagines supply the PG Tips factory.

  • PG Tips?? Presumably he thinks we grow all our tea in Birmingham?!

    Too many people completely fail to grasp that the single market has opened up supply chains across Europe – most of our most significant exports rely in one way or another on imports – of materials, energy, people etc. The costs from the fall in the pound are nothing compared to when we have to deal with all the tariffs and non-tariff barriers that this Brexit government will bring.

  • Really? They have a joint HQ, London and Rotterdam, Unilever is co-owned by Unilever NV and Unilever PLC.
    Does this reason stack up? No not really, they are a giant global company and would forever be changing prices if that were the case (and they don’t). Plus of course, some of these products will be exported and they will make extra money on them.
    Of course, the reason given has probably changed now in an attempt at damage limitation, but according to the Independent they originally stated that it was because they faced higher costs (no mention of currency conversion for balance sheets).
    A good news story for Tesco, potentially damaging for Unilever.

  • Laurence Cox 13th Oct '16 - 6:26pm

    This is what happens when you let foreign companies control products that are necessities (I exclude Pot Noodles from this). If there was a British-owned equivalent to Marmite (let’s call it Vegemite, which is actually Australian) then consumers faced with a foreign company putting up prices of Marmite, could respond by switching to Vegemite. But because Marmite has effectively a monopoly on yeast-based spreads, the foreign company is able to raise the prices as far as the market will bear.

    Now, of course, Marmite is a fairly trivial example, but think about our suppliers of electricity, gas and water, many of which are foreign-owned. They could make exactly the same argument that the fall in value of the £ causes a reduction in their profits, whether denominated in $ or €. This is the downside of the single market and may well lead to calls from the left for renationalisation of natural monopolies.

  • And lo and behold, an agreement is reached

  • There may well be some opportunism, but if fuel prices increase because that’s traded in dollars, then manufacturing and transport costs will increase. If the product is imported, and especially something traded in dollars, then costs will go up.

    There will always be winners and losers when the value of the pound goes up or down, but any extreme movement will cause problems for at least some people. I have little time for Tesco or Unilever, but they’ll probably have a deal in place which applies across a whole range of products. Both organisations will be prepared to lose a bit on some products, if it’s balanced by making a bit on others. I don’t see that as a conspiracy.

  • Joseph Bourke 13th Oct '16 - 7:58pm

    A distinction needs to be made between the functional currency (that of the home market) and the presentation currency i.e. the currency in which a company reports. IHG Plc is a British based multi-national company with listings on both the NY stock exchange and the London Stock Exchange. It’s presentation currency for its group accounts is US dollars, where the bulk of its hotel business activity is. Dollar earnings converted to sterling will see an uplift from exchange gains, conversely sterling earnings converted to dollars will see an downgrade from exchange losses. There is an element of internal hedging there.
    If the FTSE 100 is anything to go by, most UK based multi-nationals with substantial dollar earnings are doing well at present. Overseas company with significant sterling earnings will see the opposite effect reflected in their share prices. It is not just production costs that have to be factored into product pricing, the relative cost of capital is an equally important element. Overseas investors will require a greater volume of sterling denominated returns (greater profits) than was previously the case to maintain existing returns on investments denominated in foreign currencies.

  • In 2013 the exchange rate averaged the year at about 1.17 euros for £1. In 2015 the average was about 1.38 euros for £1. In 2015 I don’t recall any announcement by Unilever saying they were going to drop the price of Marmite because the pound had got stronger.

  • Paul Murray 13th Oct '16 - 9:12pm

    @Malc – They were probably too busy commenting on how their managerial acumen had boosted the company’s profits.

  • Peter Martin 13th Oct '16 - 9:19pm

    Yep, I think Malc has nailed the argument against Unilever nicely.

    If their pricing of a British made product is in Euros then it should equally well fall when the pound rises.

    And of course it didn’t! So we have a ratchet effect of increased prices when the pound falls and level prices when the pound rises.

    Tesco are quite right to resist.

  • Having spent my entire career working for a Fortune 100 company, currency fluctuations are a way of life and the effects in major markets are highlighted & reported in the annual report. No way could you keep adjusting prices because the Yen,Sterling,Rand et al had devalued.

    When Sterling almost hit parity with the Euro in 2008 after the financial crisis there were no 10% increases.

    The 10% increase was either an attempt to control cross border EU trading i.e wholesalers buying from the UK instead of in Benelux for example or just an opportunistic excuse to hike prices.

    Amazing how quickly they have backed down with Tesco.

  • On Marmite – Ferrari has a point. It is made here. And where profits are reported didnt induce Unilever to drop prices when the Euro fell. However… there is a wider point about processed foods. We have in Europe food processing plants because the EU operates protectionist tarrifs on processed food. We could cut these after Brexit and food would be cheaper but our domestic food processing and farming industries may collapse.

  • Richard Underhill 13th Oct '16 - 10:15pm

    Surely Nigel Farage is the Marmite character, often ready with a quote and available for interview?

  • And the margin on Marmite is massive already… it is made from a waste product from brewing which is dirt cheap.

  • I can live without Unilever products. I could very happily live without Ferrari. I could live without Tesco who are not whiter than a Persil white when it comes to putting profits before consumers. But Ferrari has a point even though tea is an import commodity with accompanying volatility regardless of currency fluctuations. Unilever are attempting to hike prices for wholly UK produced goods by blaming the £. Their UK profit has neither gone up or down on those. I’d let them put up the prices but market heavily on the cheaper alternatives. Let the consumer decide. I’ve already decided; I do 90% of my shopping in Aldi and Lidl, German companies often using British suppliers, and I’ve not noticed major price hikes.

    @ Paul, you’re attacking Ferrari for attacking Unilever opportunism and thereby appearing to defend Unilever. Unilever’s profits have risen significantly on exports of their products made here, especially with mainly UK materials. But they won’t be giving Eurozone consumers a 10% price drop.

  • Those of us that live in less leafy districts realise you can glide by quite nicely without touching a Unilever product.

    Near me are at least three stores that have equally as good products made locally at half the price.

  • After all that free advertising ….
    no wonder Unilever settled its dispute with Tesco!

  • Bill le Breton 14th Oct '16 - 9:35am

    This was an interesting test about the state of the economy. Cd Unilever make a price rise stick. If it cd not or if it has to reduce article or pack sizes, the economy wd be experiencing deflation.

    The answer is not yet clear, but it does look like deflation is still the major prob for UK economy.

  • Forget Unilever/Tesco/Ferrari and, with respect, you Paul….

    The point is that the UK imports over 40% of our foodstuffs…A weak pound WILL force up prices…
    As for those who don’t remember sudden price increases; have you forgotten 2008 when, following world commodity hikes, UK prices rose by between 15% and 40%?????

    Perhaps, it is because of the global financial meltdown, at the same time, that such an event is forgotten?

  • I think one of the key points being missed in this is that a falling pound will not be that the day it falls everything must adjust but more that the fall is looking likely to stay at the newer lower levels (or lower still of the government doesn’t shut up). That will produce some inflation fairly rapidly (energy) but some will take time to filter through but will hit eventually. Different companies try raising prices to cope with inflation in different ways obviously Unilever thought taking a short sharp hit was the best way to go. The price hike was going to have to come it was just a matter of how it was introduced.

    For those who are complaining that previous movements didn’t see a price movement every time, they will have been well hedged. The current movement is considered a long term move with less chance of bouncing back.

    Cllr Mark Wright
    I’m not sure I would say that it is bad economics to focus on one reason for price rises, perhaps an incomplete explanation. As for the liberal approach, I’m not sure why people insist on drawing the your are attacking/defending multinationals, the liberal approach should be to encourage more competition in the market to strip the dominant players of their power.

  • David Evershed 14th Oct '16 - 10:16am

    Since Marmite is manufactured in Britain using yeast extract from a British brewery its costs are largely unaffected by the sterling exchange rate. A large proportion of its revenue is in the UK and in sterling.

    Consequently, its profit margin on UK sales is unaffected by the exchange rate.

    However, Marmite is also exported and if it maintains the same overseas price it will earn a larger profit margin with a higher dollar and euro exchange rate. Alternatively it could maintain the profit margin by reducing export prices to its overseas customers and sell more product.

    On balance, positive for Unilever.

  • tpfkar

    Love it…

  • james jardine 14th Oct '16 - 10:31am

    Having spent 50 years in Procurement, I found Unilevers price request perfectly acceptable from their point of view. Tescos buyers have taken their standard position refusing it, and probably asked for a price reduction. Asda appear to have settled in private, so no ones asked why has this been made public.
    These battles go on everyday lots of companies go under but suddenly Marmite hits the headlines.

  • @Expats The point is that the UK imports over 40% of our foodstuffs…

    The figure is a little over 52%… 🙂

  • David Evershed 14th Oct '16 - 11:11am

    Paul Walter

    Marmite profits in sterling are largely unaffected by foreign exchange rates because of the largely matched currency of costs and revenues. ANy increased fuel costs for example offset by increased export revenue.

    Marmite’s profits in sterling are then reported in Euro in the combined dual company results and Euro results will be shown lower as a result of sterling devaluation. The dividend declared in Euro will also be lower but when paid to Unilever’s UK shareholders in sterling the dividend will be back where we started – no difference arising from a sterling devaluation.

    The company has a dual UK/Netherlands organisation structure but is effectively one company despite having separately quoted Dutch and UK shares.

    At the end of 2015, it is estimated that the combined geographic distribution of Unilever shares were held as follows; 33% United Kingdom, 33% USA, 3% Netherlands and 31% Other.

    The 3% of Dutch shareholders will see a fall in value of their dividends as a consequence of sterling’s devaluation but the 33% of UK shareholders will not.

  • Roland 14th Oct ’16 – 10:52am…[email protected] The point is that the UK imports over 40% of our foodstuffs…………….The figure is a little over 52%… 🙂

    And we can’t even eat Boris’s promises….His quote of, “My policy on cake is pro having it and pro eating it”…means they’ll be none for the rest ofus…

  • Joseph Bourke 14th Oct '16 - 1:37pm

    Unilever is looking at price increases for supplies to Tesco’s Irish stores (priced in Euros) as well as UK stores, which suggests that sterling currency fluctuations are not the principal rationale for price hikes in this case.

  • Bill le Breton 14th Oct '16 - 2:43pm

    A) A one off increase in prices because of a shock (such as a depreciation in the currency) is not inflation. Are employers lightly to increase wages? Is this that likely to lead to further increases in prices?
    B) It is not inevitable that producers and retailers will be able to make price rises stick. This is not the same economics situation as that existing in 2007/08 but even then the prices rises were quickly followed by deflation and plunging aggregate demand (NGDP).

    If prices do start to rise – big if in my opinion – the hot potato effect will kick in. People won’t want to hold on to as much cash, their demand for money to hold will fall. The velocity of exchange will increase and aggregate demand will increase. In anticipation producers will seek to increase output. New machines, new techniques will be introduced and the productivity of labour will rise. Tax receipts will rise, the deficit fall and the ratio of debt to GDP will improve – No bad thing.

    But if people faced with attempted price rises cut back, or substitute inferior goods and services, and sales at Aldi and Lidle etc rise, terrifying Tesco and their shareholders, we shall just have to hope that firms switch to UK suppliers.

    We have to remember that in ‘Japan time’ this is their year 1999. Look it up. The big signal that deflation is at work is when product sizes and packet sizes start getting smaller.

  • Bill le Breton 14th Oct ’16 – 2:43pm….

    What Producer/Retailer can ‘swallow’ a 20% increase in costs?

    As for turning to UK suppliers??????? As has been said over half of our food is imported..Just take Fruit; how much is UK produced? We have grubbed up orchards, etc. because it was cheaper to import from SA, NZ, Oz, etc…I look forward to English oranges, grapefruits, etc…

    Perhaps the much dreaded ‘Climate Change’ will be our salvation?

  • Andrew McCaig 14th Oct '16 - 3:39pm

    Bill le Breton,

    One thing I would definitely dispute is the idea that Aldi and Lidl are somehow “lower quality” than Tesco and other supermarkets. They have a more restricted range but in many cases the quality is excellent and the value far superior. Ground coffee at Lidl is a classic case – both better and cheaper than anything in Tesco. The other think I really like about Lidl is the range of specialist Mediterranean foods, rotating between Spain, France, Italy and Greece. Great stuff from Europe, but no doubt soon to rise in price if the pound stays where it is.. But will still be cheaper than Tesco.. I always buy British vegetables when I can and go to the local farm shop every week, but Lidl show that we should not cry for British supermarkets who are making plenty of profit out of the British people…

    I would agree that Netto is lower quality!

  • Bill le Breton 14th Oct '16 - 4:11pm

    Andrew – my reference to inferior was not to Aldi or Lidle – there was a comma between them for good reason .

    Expats: we shall see – that is what I find so fascinating about the present situation. It is not certain that prices increases will stick. Do we yet know the deal between Unilever and the supermarkets it supplies? And if price increases don’t stick, aren’t sustainable, then it suggests deflation remains the great threat facing us and other economies, from Japan to the US. The last time we in the UK faced anything similar was 1930. We have only Japan over the last quarter of a century to guide us.

  • I went in to Sainsbury’s the first time in a couple months. The last time I went their home brand frozen Pizza’s were £1.30p. Their new price, not a sale price, is 90p. Does this mean that Brexit has made Pizza cheaper?

  • Paul Murray 14th Oct '16 - 5:02pm

    In August 1992 – the month before we left the ERM – the average exchange rate for the USD versus GBP was about 1.93, i.e. about 2 dollars to the pound. By the following February it had fallen to an average of 1.43 – a drop in sterling versus the dollar of about 25%. The pound did about the same versus the French Franc, falling from 9.55 Francs to the pound to 8.01 over the same period, a drop of 16%. Yet inflation barely moved, trundling along at about 2% for many years after Black Wednesday… why? And Black Wednesday also started a period of 16 years of almost continuous economic growth. Why?

  • james jardine 14th Oct '16 - 5:24pm

    The headline should be ‘Far to many Britains demonstrate a total ignorance of modern business’.
    Reading comments on a number of websites I am truly shocked at the nonsense spouted, clearly many have no understanding of the stages required in creating and taking a product to market
    It leaves me to question our education system

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