Earlier this week, Ian Wright, Director General of the UK Food and Drink Federation signalled his feelings regarding the UK’s Brexit decision in no uncertain terms – “It is a disaster”. With a UK perspective it is pretty easy to share his point of view on the matter, but the food and drink industry will need to take advantage of the silver linings this unexpected cloud has presented.
The industry will be impacted in various ways over the coming weeks: it will be hit by cost inflation – a direct result of the devaluation of the pound – few sectors of the food and drink industry will not be impacted as commodity prices for ingredients and packaging and even the costs of transport will all translate into immediate cost increases which manufacturers will argue that they need to pass on to retailers and thus consumers. I think retailers will accept the price increases – so ultimately it will be consumers hit – and their discretionary spend will reduce – we should all prepare for a measure of belt tightening.
For manufacturers, the trickier question will be to decide when the FX rate has settled and when to go for the increase, because there is probably only one bite at this particular cherry.
In the medium term, the challenge for many food companies will be sourcing labour. So many of our factories and the supply chains that feed them are staffed by employees from the EU. Will the industry have to jump through bureaucratic hoops to bring in labour to man those facilities?
However of equal importance will be the attractiveness of the UK to those workers. With the pound dropping on foreign exchange markets, the value of money that can be repatriated home is reduced – important to many. One of our clients says the employment agency has warned of a slow-down in enquiries from overseas workers seeking factory work in the last few days! So even this labour dimension could have immediate and short term consequences
And having spoken to a number of European migrants in the past few days, never have they felt so unwelcome in the UK as they do following the Brexit vote.
So are there silver linings to this cloud? No doubt the Brexiters would argue there are, but in hard business terms, it is harder to find them than to simply claim them. Any lifting of bureaucracy from the EU “red tape” will be limited in benefit for the UK food industry as our standards of hygiene, of safety, of quality are already above European norms. And the red tape that our own Home Office will apply to recruitment of overseas workers will no doubt be pretty onerous.
In our view to the extent any silver lining exists it is in the exchange rate re-setting and our ability to exploit export opportunities more than we have done historically. At Food Strategy Associates, we have long held a view that our food industry could export more than it does. Our factories produce some of the highest quality and safest food products on the planet and the intensely competitive dynamics of the UK grocery industry means that our innovation, our inventiveness is at least as high as most other markets – arguably higher than most. And our brands can have international appeal. So why are there so few examples of great British food products featuring on the shelves of foreign supermarkets? Tyrrells Crisps have carved a niche across Europe. Walkers Shortbread has established itself in North America. Why are these examples the exceptions rather than the rules?
The shift in our currency gives our UK food manufacturers an opportunity to look at international horizons, in Europe and elsewhere – when we have solved the immediate problems of recovering inflation and finding a new workforce, this needs to rise up the agenda!