While you might envision the falling pound affecting continental luxuries like Cornettos and Cif limescale remover, when it comes to Marmite – you’d think it would be Brexit-proof.
The entire world’s supply of the divisive spread is made in a single factory in Burton upon Trent, Staffordshire, and has been for 113 years.
By Britons, for Britons
The factory in Burton produces 6,000 tons of Marmite, or 50 million jars, per year. The vast majority – 85 per cent – is sold in the UK. The upshot of this is that Marmite exports don’t contribute highly to its profitability or otherwise. Any boost to profit margins in Austria from the stronger euro is going to be minimal. It’s even banned in Canada because of an additive that’s not approved there.
Marmite – and other Unilever brands that aren’t made in the UK – use non-British raw materials, and those are priced in dollars. The falling pound has made them even more expensive. Raising prices, Unilever says, is necessary to make up for the cost of doing business in the UK going up.
One small part
Even if Marmite itself didn’t get more expensive to produce, it forms just a small part of the overall empire. The figure of 10 per cent is rumoured to be the price rise Unilever asked for, and it could well have been spread across all of its products.
It’s a mistake to think of a brand within a huge umbrella company as operating like an individual business. Unilever’s supply chain wins awards for its efficiency, and it doesn’t get there by walling off each product from the others.
Unilever also books its profits in euros, meaning that a depressed pound has a direct impact on its bottom line – it could make the same or more money than last year in Britain and still end up with a smaller amount in its results.
That’s what happened when it reported today. In the past nine months, sales (which are counted by the company at a fixed exchange rate) increased by 4.7 per cent while turnover (counted at current rates) declined 1.8 per cent.
Two gorillas facing off
Another theory is that Unilever and Tesco, whose chief executive Dave Lewis worked at the company for 27 years, are simply thrashing out an example to be followed by other suppliers and retailers. As the biggest supermarket and the biggest consumer goods group selling into the UK, they can set a benchmark for others on how to deal with the post-referendum pound
“The two gorillas on both sides have decided to go through the motions of the negotiation on behalf of the industry,” Bruno Monteyne, an analyst at Bernstein, told the Financial Times.
The question of tax
One other reason why the company might be particularly wary of currency movements is its tax structure. Unilever, which has previously threatened to leave the UK due to taxes, books its sales and profits through a subsidiary based in Schaffhausen, Switzerland.
The Swiss subsidiary owns everything from raw materials to finished products, and other arms of the business, like the British one, have to pay high fees to “use” them.
This keeps profits down – and out of the hands of the taxman. It helps the company as a whole make money without losing too much to the government in any one country.