The Tricky Business of Brexit: Unleashing The Genie

With just over four months to go before Brexit and the cabinet seemingly in turmoil following the release of the draft Brexit deal, the current advice appears to be prepare for the worst and hope for the best.

Britain’s divorce with the EU has been fraught with difficulties and delays and this week’s headlines appear to show no let up in the arguing and uncertainty.

In the meantime, concerned food and drink operatives have donned the collective tin hat and are trying to make sense of a set of unknowns. It’s the Dunkirk spirit all over.

At this stage in the game the question is what can SMEs do to steady the ship and capitalise on the opportunities?

What is the Brexit effect likely to be?
The assumptions are pretty negative on the whole. Wine prices will shoot up by 22 percent, olive oil will become a luxury. The latter’s already an issue what with viral infestations and weather patterns battering the Mediterranean.

Under a no deal scenario, products that display an EU mark or a logo will face a ban on exports while new approvals for certification are sought.

Alternatively, there could be a free trade period to ease the supply chain for those suppliers who are dependent on EU imports like juniper berries for their craft gin distillery.

A new study from Barclays Bank meanwhile says a failure to break the current impasse could leave supermarkets with an average tariff of 27 percent on EU goods, with those costs passed onto the shopper. In which case retailers could look to increase their purchasing from local suppliers.

The three biggest concerns are:

1) Availability – the speedy erosion of consumer choice
2) Quality – which actually doesn’t need to change at a UK based production level
3) Price – impacted by tariffs, rising labour costs and a weakening pound

Worst case scenario? Food shortages that hark back to the Forties when the nation was put on rations.

What are the current ripples?
In September, the food and drink sector experienced growth, with international exports up by 14 percent driven by a weak pound. But it wasn’t in profit. Inflation in raw materials caused by the slump in the pound saw margins decline.

This rapid growth, particularly in areas like artisan and craft start-ups as they scale, is already putting a strain on the available talent pool.

Recruitment consultants report that food and beverage continues to demand a wide range of operational, production and management talent in particular, and that’s soaked up the available resource. Costs per employee are also growing, which could also put the brakes on future growth.

All this before predicted restraints like border checks, logistics and new regulatory barriers come into play.

Keeping Calm, Carrying on

Deal or no deal, the opportunity to lead the world remains.

Genuine brands which come with authentic social missions are gaining real traction with otherwise sceptical shoppers who are looking for ways to eat better, reduce their impact on the planet and live more responsibly.

There’s also a marked trend for UK consumers to shop local and buy local where possible for the same reasons.

The disruption of start-ups with shorter and healthier ingredients labels has left retailers and big food brands having to retune their businesses. Their dominance is being challenged.

Deal or no Deal, a fundamental shift is happening led by a new mindset which realises that the damage caused by consumer packaged goods is a burden we can no longer ignore. This is reflected in the shift away from single-use plastic packaging, from fast to sustainable fashion, and from over processed foods to a diet which allows us to live well for longer.

Which means those independent producers who show themselves sufficiently agile to meet changing consumer preferences in their categories will continue to prosper despite all the Brexit doom and gloom mentioned above.

A recent report from OC&C Strategy Consultants pinpoints brands like Quorn and Fever Tree which have achieved impressive international trajectories by capitalising on trends towards lower meat consumption and a preference for premium mixers (regardless of their true sugar content).

Yes, the picture is fluid, but it appears that flexible businesses that are wired to adapt could use Brexit to develop a clever competitive advantage.

Margins and cash flows are under pressure, and several other scenarios are also in play. New retail models, retailer consolidation, acute competition on price, and business rates issues for an increasingly fragmented out of home sector.

One thing is for certain. British food and drink brands are held in high esteem. That’s not going to change and is another perfectly good reason for us all to remain optimistic.

By Fiona Esom

Fiona Esom