Good morning!
Marmitegate
My Twitter feed is buzzing this morning with news of a row between Tesco & Unilever, over price rises, which has resulted in marmite supplies running out. An Australian chipped in that "Vegemite is better anyway", and my favourite quip came from @joeheenan who suggested a solution;
Don't panic about the impending marmite shortage. Simply make your own by mixing a rotting fox carcass with some tar.
This is of course the tip of the iceberg in terms of inflation. The huge drop in sterling means that prices will have to rise considerably in the shops. Retailers & consumers will resist these price rises of course, but there's no avoiding the reality that imported goods will have to rise in price. A lot, if sterling remains this depressed, or goes even lower.
This article in the Guardian (yes, I know, I know) says that Unilever has pushed Tesco for 10% price rises. In my view that's not unreasonable, given that sterling has fallen by a good bit more than 10%. The interesting thing is how much UK manufacturers will be able to benefit by replacing imported products with UK-manufactured ones? That is likely to be an ongoing trend.
Although of course imported raw materials will go up in price, so for UK manufacturers it's only the UK-based costs such as property, wages, admin, etc, that have actually fallen relative to overseas competitors. Still, this situation creates lots of opportunities for UK companies to replace imported goods, if they can.
I was doing some research last night to see what the breakdown of costs is for car manufacturing. I only found one source, and don't know how reliable it is, but this suggested that raw materials make up almost half of the total cost of making a car. This suggests that UK car manufacturers could benefit by about half of the move in sterling - making them a lot more competitive, even when higher imported parts costs are factored in.
Going back to marmitegate, the fall in sterling is going to make life really tough for importers - it's bound to squeeze margins, because retailers will be forced to absorb some cost increases into lower margins. Plus sales volumes will drop - it's going to get really ugly on the High Street next year I reckon. These are certainly the worst conditions for retailers since 2008.
One of my roles is…
