Kaufland sheds Unilever brands in price row: ‘Unilever products are highly interchangeable’

By Katy Askew contact

- Last updated on GMT

Knorr is among the brands delisted by retailer Kaufland
Knorr is among the brands delisted by retailer Kaufland
German retailer Kaufland has ended a “decades-long business relationship” with various Unilever brands, insisting that the consumer goods giant is attempting to use its “dominant market position” to impose “drastic price increases” and “unilateral changes to terms and conditions”.

The retail group said that as of 31 December, Knorr, Mondamin, Pfanni, Bertolli, Unox, Lipton, Ben & Jerry's, Langnese, Magnum, Coral, Viss, Domestos, Dove, Rexona, Duschdas, Signal and Ax brands will be de-listed. Selected Magnum, Cremissimo and Viennetta ice cream products will continue to be stocked.

The move comes in response to Unilever’s efforts to raise prices and change contractual terms and conditions, Kaufland explained.

“The price increases and unilateral changes in terms and conditions demanded from Kaufland would have led to significant increases in sales prices which would have exceeded market prices,”​ a spokesperson told FoodNavigator.

Unilever did not respond immediately to requests for comment. However, the group has previously insisted that it will not comment on customer relationships.

The spat comes shortly after European regulators agreed to implement new rules governing unfair trading practices (UTPs). The regulations are designed to support a “fairer​” food chain and ensure value is distributed evenly between retailers, food manufacturers and farmers.

However, European retailers have been critical of the proposals, insisting that they place too much power with dominant global corporations as well as imposing new administrative burdens and legal uncertainty on retailers.

EuroCommerce Director-General Christian Verschueren said that claims that UTP proposals are “protecting the weak against the strong​” are “frankly disingenuous​”. The head of the retail trade association continued: “It skews the market yet further in favour of national brands who already have considerable power.”

Kaufland, which is owned by Lidl operator Schwarz Gruppe, has over 1,200 stores in Germany, the Czech Republic, Slovakia, Poland, Romania, Bulgaria and Croatia. The hypermarket group said it has taken the decision to destock “several” Unilever brands from its international businesses as well.

Power struggle

Kaufland accused Unilever of attempting to leverage its dominant market position to inflate its revenue by raising prices ahead of cost inflation.

“As one of the world's leading branded goods manufacturers, Unilever seeks, from Kaufland's point of view, to use its dominant market position to influence the retailer and further optimise its own revenues,”​ the spokesperson argued.

Unilever has a history of conflict with its retail customers over pricing.

In 2016, the group saw UK retailer Tesco remove some of its products, including Marmite and Hellmann’s, from its online store when Unilever attempted to bump prices by 10% to offset the fall in the value of the pound sterling.

Last year, the FMCG giant was fined €27m by Greek antitrust authorities for anti-competitive behaviour. The Hellenic Competition Commission concluded that the multinational food corporation used the scale of its margarine brands to impose unfair trading agreements on retailers and wholesalers in the country. The violations were said to have occurred over a period of years, between 2002 and 2008, prior to Unilever’s sale of its spreads unit.

Unilever’s brands ‘highly interchangeable’

Kaufland said that it does not expect sales to be hit by the decision to de-stock Unilever brands.

The companies have been embroiled in negotiations over pricing since May last year and in the autumn Kaufland removed 480 Unilever products from its shelves. This, the spokesperson said, meant the retailer and its customers have had time to adjust to the situation.

“The large selection of up to 60,000 [SKUs mean] many brands and own-label items are available to customers as alternatives. An analysis of the market data has also revealed that Unilever products are highly interchangeable and that customers have already adjusted to it,”​ the spokesperson suggested.

Data from Euromonitor International reveals that the value sales of Unilever's brands have witnessed market share pressure in Germany over the past five years. 

Unilever German market share
SOURCE: Euromonitor International

Deeper problems for Unilever in Germany?

Typically the German retail market - home of the discount format - is viewed as highly price-focused. However, according to Mintel retail analyst Thomas Slide, German grocery shoppers are increasingly taking factors like quality, sustainability and convenience into account when they think about value. 

Retailers have responded by evolving their offerings, he told FoodNavigator. "While the German grocery shopper has always been incredibly price-focused, there are signs that it is increasingly about value-for-money rather than just the getting the lowest price possible with factors such as quality, sustainability and convenience becoming an increasingly important part of the equation. As a result, many of the discounters have invested in improving the in-store environment and increasing their range of products, services and even brands. Meanwhile the supermarket chains have also been growing by focusing on quality, sustainability and rolling out new convenience and food-to-go options."

Retailers, including the discounters, have upped their game - meaning that it is that it is becoming increasingly tough for brands to justify their price premiums. "This is increasing the competition around value rather than just price, making it increasingly challenging for food makers looking to justify a price premium,"​ ​Slide observed. 

Players in the mid-priced segment, such as Unilever and Nestlé, are particularly vulnerable to this trend, Euromonitor's senior food and nutrition analyst Raphael Moreau added.      

"Premium brands have generally continued to perform strongly in Germany, while brands in the mid-price segment whose positioning is not strongly differentiated from private label are more likely to be under increased pressure from retailers seeking to give more prominence to their private label ranges," ​he told us. 

Despite intense competition, Moreau noted the share of private label sales has "stagnated". ​In fact, he suggested, Unilever is losing out to more premium competitors. 

"In categories where premiumisation has driven sales in the category, notably in snacks including ice cream, companies with a focus on brands with a premium positioning, such as Lindt and Storck, have continued to gain shares, while Unilever and Nestlé, more reliant on a mid-price positioning, have lost shares," ​he observed. 

Shifting consumer demand presents branded food makers with the opportunity to build appeal by taking a moral stance on issues like food waste, environmental impact and animal welfare, which have increasingly become part of the discourse around food in Germany. "Building a narrative around these issues is becoming a vital way to command a price premium in an increasingly competitive market," ​Slide observed. 

In particular, animal welfare became a hot potato for German consumers in 2018 - and the issue looks set to remain high on the agenda in 2019. However, Moreau believes that Unilever has limited ability to capitalise on the subject as a point of difference in its primary categories. 

"While the positioning based on animal welfare is generally increasingly important for food manufacturers, it is not likely to be a game-changer for Unilever in its two key categories, ice cream and sauces, dressings and condiments. However, Unilever has responded to consumer concerns about animal welfare with the launch of a vegan version of Magnum in Germany in 2018."

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