{"id":25129,"date":"2017-11-15T19:15:37","date_gmt":"2017-11-16T00:15:37","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/brexit-vs-tesco-will-britains-largest-grocer-stand-the-ultimate-test\/"},"modified":"2017-11-15T19:17:40","modified_gmt":"2017-11-16T00:17:40","slug":"brexit-vs-tesco-will-britains-largest-grocer-stand-the-ultimate-test","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/brexit-vs-tesco-will-britains-largest-grocer-stand-the-ultimate-test\/","title":{"rendered":"Brexit vs. Tesco: Will Britain\u2019s Largest Grocer Stand the Ultimate Test?"},"content":{"rendered":"

On June 23rd <\/sup>2016, the United Kingdom (\u201cUK\u201d) voted to leave the European Union (\u201cEU\u201d) and Prime Minister David Cameron subsequently resigned from office, causing the largest ever one-day plummet in value of the Pound Sterling (\u201cGBP\u201d) against the US Dollar (\u201cUSD\u201d) and the Euro (\u201cEUR\u201d). [1] Exhibit 1<\/strong> outlines the GBP \/ USD exchange rate over time. UK-based retailers were left scrambling to maintain profits as imported goods became exponentially more expensive, leaving countless management teams no choice but to rethink their respective supply chains. Tesco, a leading UK grocery store retailer, has in particular experienced adverse effects arising from the vote. Wholesale suppliers have attempted to pass through blanket price increases onto hundreds of brands, blaming the weak pound for more expensive imports. [2] Until being recently resolved, Tesco had refused to pay the 10% price hike on Unilever brands and consequently, popular products such as Marmite, Ben and Jerry\u2019s Ice Cream, and Hellmann\u2019s Mayonnaise went un-stocked at all Tesco retail locations. [2] Known as \u201cMarmitegate\u201d, Tesco and Unilever recently came to an agreement by which they would revert back to their previous supplier agreement; but issues for Tesco unfortunately do not stop there. [2] They have stopped selling an assortment of beers at the retail level after refusing to accept an additional price increase from Heineken. [3] These wholesaler disputes spell trouble for Tesco with the outlook only looking bleaker for UK retailers expecting higher trade tariffs to even further increase supply chain costs. [4]<\/p>\n

Tesco has engaged in a number of near-term initiatives to offset its Brexit induced issues in an effort to retain market share, as the large grocery store chains risk losing out to discount retailers such as Aldi and Lidl. [4] While the concrete exit implications will not be ratified until early 2019, the near-term concerns for Tesco remain the implications of a weak GBP and the corresponding changing consumer shopping habits. CEO Dave Lewis has already flexed his muscles by refusing to accept the price increase from Unilever, claiming that Marmite, among other products, is manufactured in the UK and therefore should be immune to exchange rate fluctuations. [2] Tesco is the largest grocery store chain in the UK and through its sheer scale and presence, has the leverage to push back against unruly wholesaler demands, and will continue to do so as they refuse to be at the behest of their supply chain. In the medium-term, the retailer will be forced to make inevitable changes in its supply chain once the UK officially leaves the EU and international sourcing becomes too costly. 50% of the butter and cheese consumed in the UK comes from milk imported from the EU which will undoubtedly shift Tesco\u2019s sourcing efforts to local producers. [5] Expected increases in inflation will also incentivize UK retailers to source locally and consolidate factories when plausible. [5]<\/p>\n

Consumer shopping habits will unavoidably change due to the decreased purchasing power of the GBP; how Tesco reacts to this trend will be a telling indicator of their long-term resiliency and ability to rebound in the midst of the strong headwinds imposed by Brexit. The weakening pound will not only take a toll on the retailers, but also on the consumers, who will alter their consumption habits over concerns related to their finances and current cash balances. [5] UK consumers have been fortunate in the last half decade as prices have remained relatively flat with inflation rates staying well below the forecasted Bank of England levels. [6] It was only a matter of time before the pound weakened and inflation took off, and the Brexit vote will only serve to compound these effects. [6] Tesco would be smart to closely monitor these changing habits and renegotiate with suppliers to tailor procurement to only the most essential products, as it relates to the post-Brexit shopper. They should also explore increasing the amount of in-store promotions to create an allusion of high-value, low-cost bundles, further persuading customers to purchase bucketed products Tesco can realize a healthy margin on. [6]<\/p>\n

An uncertainty that will remain top of mind for the entire UK relates to the magnitude of the exit from the EU and the corresponding post EU trading bloc arrangements. How hard or soft the exit will be remains highly speculative. Tesco along with other retailers and UK based entities with supply chains heavily dependent on free trade within the EU, will lobby for a softer exit so as to avoid costlier imports and remain a part of the European single market. Current Prime Minister Theresa May has declared herself a proponent of a hard exit, but Tesco will have to wait and see, unsure of what the future holds, or the radical changes it will have to undergo. [7]<\/p>\n

(Word count: 794)<\/p>\n

 <\/p>\n

Exhibit 1<\/strong>: GBP \/ USD exchange rate (06\/23\/2016 \u2013 10\/07\/2016) [8]<\/p>\n

\"\"<\/a><\/p>\n

 <\/p>\n

[1] \u201cUnilever and Tesco Settle Brexit-Inspired Price Dispute.\u201d Fortune<\/em>, Reuters, 14 Oct. 2016, fortune.com\/2016\/10\/14\/unilever-tesco-settle-brexit-price-dispute\/.<\/p>\n

[2] Butler, Sarah, and Julia Kollewe. \u201cTesco and Unilever Settle Marmite Dispute.\u201d The Guardian<\/em>, Guardian News and Media, 13 Oct. 2016, www.theguardian.com\/business\/2016\/oct\/13\/tesco-unilever-resolve-marmite-dispute-price-supermarket.<\/p>\n

[3] Rodionova, Zlata. \u201cTesco Scraps Heineken Beers Including Amstel, Sol, Tiger and Kingfisher from Its Shelves amid Brexit Price Row.\u201d The Independent<\/em>, Independent Digital News and Media, 22 Mar. 2017, www.independent.co.uk\/news\/business\/news\/tesco-heineken-beers-brexit-price-row-amstel-sol-tiger-kingfisher-scrap-supermarket-a7644026.html.<\/p>\n

[4] Churchill, Francis. \u201cLocalise Supply Chains Post-Brexit, Supermarkets Told.\u201d Supply Management<\/em>, 27 June 2016, www.cips.org\/supply-management\/news\/2016\/june\/localise-supply-chains-post-brexit-supermarkets-told\/.<\/p>\n

[5] \u201cBrexit’s Impact on the British FMCG Retail Landscape.\u201d Kantar Retail<\/em>, www.kantarretail.com\/brexits-impact-on-the-british-fmcg-retail-landscape\/.<\/p>\n

[6] \u201cTesco\/Unilever Dispute Outlines the Post-Brexit Landscape for Retailers and Consumers.\u201d Global Management Consultancy<\/em>, 20 Oct. 2016, www.crimsonandco.com\/news\/2016\/10\/tescounilever-dispute-outlines-post-brexit-landscape-retailers-consumers\/.<\/p>\n

[7] Sims, Alexandra. \u201cWhat Is the Difference between Hard and Soft Brexit? Everything You Need to Know.\u201d The Independent<\/em>, Independent Digital News and Media, 3 Oct. 2016, www.independent.co.uk\/news\/uk\/politics\/brexit-hard-soft-what-is-the-difference-uk-eu-single-market-freedom-movement-theresa-may-a7342591.html.<\/p>\n

[8] Linning, Stephanie. \u201cVictory for Britain in Great Marmite War! Tesco Comes out on Top as Unilever Withdraws Blanket Price Rises for 200 Top Brands after Threats of a Boycott by Shoppers.\u201d Daily Mail Online<\/em>, Associated Newspapers, 13 Oct. 2016, www.dailymail.co.uk\/news\/article-3835034\/Major-brands-axed-Tesco-shelves-row-supplier-Unilever-demanded-10-cent-price-rise-falling-pound.html.<\/p>\n

[9] Mcdermott, Victoria. \u201cHow Is Brexit Affecting the Retail Supply Chain?\u201d Retail Week<\/em>, 19 May 2017, www.retail-week.com\/topics\/supply-chain\/how-is-brexit-affecting-the-retail-supply-chain\/7020873.article.<\/p>\n","protected":false},"excerpt":{"rendered":"

Brexit has shaken up the entire UK retail industry \u2013 how will incumbent management teams cope with the vastly different competitive dynamics?<\/p>\n","protected":false},"author":10060,"featured_media":25130,"comment_status":"open","ping_status":"closed","template":"","categories":[3230,63,3232,360],"class_list":["post-25129","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-brexit","category-consumer-goods","category-european-union","category-tesco","hck-taxonomy-organization-tesco","hck-taxonomy-industry-consumer-products","hck-taxonomy-country-united-kingdom"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nBrexit vs. Tesco: Will Britain\u2019s Largest Grocer Stand the Ultimate Test? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/brexit-vs-tesco-will-britains-largest-grocer-stand-the-ultimate-test\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brexit vs. Tesco: Will Britain\u2019s Largest Grocer Stand the Ultimate Test? 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