Text size:

  • Small
  • Normal
  • Large
Lipton tea boxes are packed at Unilever's factory in the Jebel Ali Free Zone. The company's sales in the region hit $1.5 billion last year. Jeff Topping / The National
Lipton tea boxes are packed at Unilever's factory in the Jebel Ali Free Zone. The company's sales in the region hit $1.5 billion last year. Jeff Topping / The National

Unilever questions price caps on retailers and manufacturers

The UAE Government's price controls are not sustainable in a free market economy, says Unilever, one of the world's largest consumer goods companies.

Price controls imposed on retailers and manufacturers in the Emirates are not sustainable, according to the regional chief of one of the world's biggest consumer goods companies.

Sanjiv Mehta, the chairman of the Middle East and North Africa (Mena) region for Unilever, says the combination of rising commodity prices and Government price caps have damaged the company's margins this year.

"In a free economy, these price controls have limited application for a limited amount of time," Mr Mehta said. "This is not a sustainable basis."

The Government has introduced price controls this year, including fixed charges for basic food and consumer goods, as well as caps on price increases for manufacturers and restaurants.

Unilever sells a vast range of brands in the region, including Lipton tea, the market leader, and personal care products such as Dove, Vaseline and Lux.

The company recorded total sales across the Mena region of US$1.5 billion (Dh5.5bn) last year.

"There is no question that the costs are going to go up," Mr Mehta said. "When the fuel oil price goes up, there is a cascading effect on the economy.

"Distribution costs go up, the wages go up and food commodity cost pressure is also coming up," he said.

"There is very clearly pressure on the economy from an inflation perspective."

Unilever is not the first international company trading in the UAE to question the Government's policy on price controls.

Kraft, the world's second-biggest food company, recently asked the Government to start an open dialogue with manufacturers to discuss ways to manage the rise in global commodity prices.

Subway, the world's largest food chain, has also questioned the Government's policy.

The price of palm oil, which Unilever uses in many of its products, has increased by 50 per cent in the past year, while the cost of tea, which makes up a quarter of the company's regional business, has increased by 25 per cent.

The price controls affect Unilever because the company cannot raise prices without applying to the Ministry of Economy and retailers also negotiate with suppliers when the Government asks them to fix prices.

"The way we look at it is that [rising prices] have an impact on our margins," Mr Mehta said. "We have a very aggressive programme on how we can optimise our costs, we look at it in a very holistic manner and ask how we can reduce waste significantly."

The company has cut down on the amount of packaging used in its products, which saves material costs, along with distribution and fuel costs.

Mr Mehta has also introduced a rewards scheme for employees who can help to reduce expenses in any part of the business without damaging the value of the company's brands.

"Ideally, we would not like the restrictions to be imposed, but we also understand that governments are very sensitive to inflation," he said.

Mr Mehta said Unilever had spoken with the Government about raising the retail price of tea and demonstrated to the Ministry of Economy that market prices had increased at a greater rate in recent years than the company had been charging on supermarket shelves.

"If you take one big price increase it creates a much bigger impact on consumers," he said. "Our preferred option is to take price increases in small bites."


Back to the top

More articles

Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Miele coffee maker making Cappuccino at Miele Gallery in Sama Tower in Dubai. The cost of this coffee maker is around Dh 17,000. Pawan Singh / The National

Space-age coffee comes at a price from Miele

Miele have taken the coffee machine to a new level with its Dh17,000 offering that is built into your kitchen.

 The bridge of Seajacks Hydra, as the wind farm installation vessel undergoes finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014. Jeffrey E Biteng / The National

In pictures: Building the Seajacks Hydra

The Seajacks Hydra, a wind farm installation vessel, is undergoing finishing touches and testing works at Lamprell’s Hamriyah facility in Sharjah before its planned delivery on June 2, 2014.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 The rush of new supply of hotel rooms pushed Dubai occupancy rates down to 87 per cent. Sarah Dea / The National

Dubai hotel room rates rise 10 per cent

The rush of new supply pushed occupancy rates down to 87 per cent, a dip of 2.6 per cent from the previous year. Winter months are the strongest for Dubai hotels, with occupancy and prices falling to half their peaks by July.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.


To add your event to The National listings, click here

Get the most from The National