November 17, 2016 / 4:53 PM / 3 years ago

Tesco tells big suppliers - Don't raise prices to prop up results

WELWYN GARDEN CITY, England (Reuters) - Britain’s biggest retailer Tesco has warned its multi-national suppliers against pushing up prices following a drop in the pound just so they can maintain their reported profits.

A company logo is pictured outside a Tesco supermarket in Altrincham, England, April 16, 2016. REUTERS/Phil Noble/File Photo

In his first public comments since last month’s “Marmitegate” row between Unilever and Tesco over who should take the hit from the weaker pound, the supermarket’s Chief Executive Dave Lewis said that when there is a currency devaluation, multi-national businesses present results in both constant and current exchange rates.

“And the City (investors) completely understands it, they don’t devalue a stock because of that, they understand it’s part of the volatility of being in many countries,” Lewis told reporters on Thursday during a briefing at Tesco’s headquarters at Welwyn Garden City, north of London.

“The only thing we would ask of companies that are in that position is they don’t ask UK customers to pay inflated prices in order that their reporting currency is maintained. They don’t do that for countries outside of the UK,” he said.

The pound has fallen around 16 percent against the U.S. dollar since Britons voted on June 23 to leave the European Union, making imports more expensive. It is also down to a lesser extent against the euro.

Tesco scored a public relations coup in October when it briefly halted online sales of goods produced by Unilever after the Anglo-Dutch group sought to lift prices of popular brands such as Marmite. The two quickly reached an agreement, the terms of which have not been disclosed.

Last week, Mike Coupe, CEO of Sainsbury’s, Britain’s No. 2 supermarket group, said multi-national suppliers should take some of the pain of sterling’s fall, arguing their profitability was higher than UK grocers’.

Lewis, who worked for Unilever for 28 years, recognised some suppliers were facing legitimate cost pressures. Under such circumstances, Tesco could try to offset this by, for example, changing recipes or finding cost savings.

“There’s (inflationary) pressure. Some of it is justified and if we can’t offset it then we work out how it is we can accommodate that between ourselves and indeed our partners,” said Lewis.

Though Britain’s grocery market has seen two years of deflation, Lewis noted inflation coming through in some areas, calling out pork as an example.

“It’s selective. By no means is it completely flat and across the board, it’s very much commodity by commodity, product by product.”

The media briefing was held the day after Tesco hosted a seminar for investors and analysts which detailed the strategic drivers of its recovery.

Shares in Tesco have risen 43 percent this year after three straight quarters of underlying UK sales growth and a rise in market share following five years of losses.

Industry data published on Tuesday showed Tesco’s sales rising at the fastest pace for three years.

Last month, the firm reported a 60 percent rise in first half operating profit and raised profitability targets.

Editing by Mark Potter

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