Since the Brexit referendum on 23rd June Sterling has been under pressure, falling from 76p against the euro to 90p now. Last week, one of the world’s biggest multinationals, Unilever sought to push through a price increase of 10% on its products such as Marmite, Hellmann’s Mayonnaise and Ben & Jerry’s ice-cream.

A spat developed between Unilever and Tesco, the biggest UK retailer who refused to accept the proposed price hike and pulled those items from its online store. Unilever clearly feels it can push through the price increases it is demanding, due to the power of its brands such as Hellmann’s, Magnum, Dove, Knorr and Lipton’s.  Tesco clearly feels it cannot push through the price increases because the supermarket is locked in a brutal battle for market share.

The problem seems to be sorted for now but it is unclear for how long supermarkets will be able to resist the inevitable.

For investors, the question comes down to who has the biggest balance sheet. The share price performance of both stocks over the last five years shows clearly which company ultimately has the stronger pricing power and therefore, better earnings and dividend-paying potential. Unilever’s share price has risen by 15.48% over the past five years (and 18.98% over the past three years.) In contrast Tesco fortunes have moved in the opposite direction. The supermarket share price has fallen 9.5% over five years and a 15.95% over three years.

Pricing power is important because if a firm can charge what it wants it should generate high margins, consistent earnings and robust cash flow which it can then turn into the reliable and growing dividends which provide such a large percentage of long-term total shareholder returns.

In contrast, firms without pricing power – such as producers of commodities like paper, pulp or steel – tend to churn out more volatile earnings and more volatile dividends.

Given the size and scale of Unilever’s product range, across many different categories it will be difficult for competitors, particularly new entrants to steal their current shelf space.