Wednesday, 17 December 2008

Tesco - Shelling Out More for Nuts

Yesterday Tesco customer services responded by email to the blog entry I sent Chief Executive Terry Leahy 'Tesco - Relentless Price Rises Not Peanuts'
Further to my previous email, I have received information from our Buyer regarding the recent price increase for our Tesco Value Salted Peanuts.

Unfortunately, the price increases are due to the cost of the raw materials as well as currency issues. The cost of raw materials have increased by 105% since May 2007 and the currency change has had a negative impact of 40%.

These increases were passed on to us from our supplier in April 2008 but we have tried to hold the price as long as possible, which is why the price increase has been applied recently.

So the cost of peanuts - presumably peanuts are the raw material in a pack of roasted salted peanuts - has increased by 105%. Is this true?

I was immediately frustrated by my attempts to verify this statement. When I typed 'peanut price rises' into Google my own blog 'Relentless Peanut Price Rises' came back as the top search result...

Further searches revealed that the price of peanuts in China - one of the main producers - rose by 13% in the first three quarters of 2007, apparently because profits from oil plants in recent years have been lower and so farmers have grown less - widening the gap between supply and demand. The last price I could find for peanuts is March 2007 - $363 per ton.

I'm unable to tell you the provenance of Tesco Value Roasted Salted Peanuts - because the packaging simply says 'produced in either The Netherlands or Poland.'EU labelling laws produce some curios anomalies - as we discovered recently with the contamination of Irish Pork. Meat grown in Ireland but baked into a pie in England means the pie can be labelled British.

So not much luck with the peanut price rise, but what about the 'negative impact of the currency change'?

Like many commodities peanuts are traded in dollars. If Tesco's peanuts are processed in the EU they are presumably bought in dollars and sold in euros. Sterling has sunk 25% against the dollar in the last 12 months and almost 20% against the Euro this year, so combining the 25% dollar surge and 20% euro rise, Tesco's 40% currency change is conservative.

Stand by for further price rises - if the underlying price rise is 105% for the nuts and 40% for the currency. So far customers have escaped with a mere 85% price rise. 145% peanut inflation will produce a new price in 2009 of 49p for a 200g pack of 'Value' peanuts. Watch this space.

No comments: