How are FMCG leaders preparing for Brexit?25th September 2018
By Stuart Richards
With difficulty is the simple answer. Because the only thing that appears certain at the moment about Brexit is that it is causing a great deal of uncertainty…across all industry sectors.
Speaking regularly as I do with commercial leaders in FMCG, it is the subject that is unsurprisingly raised every time we meet.
The actual Brexit deal (or no deal) the UK will end up with remains unclear with just six months to go. But key concerns about the impact on the bottom line centre on how restrictions on freedom of movement of both people and goods will affect supply chains, and how new import duties will alter the share of wallet.
Short term impact will include losses from currency fluctuation, and increased costs from arranging work visas (or whatever system replaces free movement of people) and changing packaging and labelling.
Longer term effects include delays in new product development and investment in UK factories, as companies wait for clarity on the UK’s future relationship with the EU.
Industry areas such as farm to fork are already suffering negative effects. A survey published by the Food & Drink Federation found nearly a third of the EU workforce had left the UK within a year of the referendum while 47% of the remainder were considering joining them.
Earlier this month, in response to the impending staffing crisis, the Government announced a post-Brexit migrant farm workers’ visa scheme for up to 2,500 EU nationals for 2019 and 2020.
There is an expectation that the post-Brexit import duties could radically change consumer spending habits, with many likely to reduce expenditure on premium items which will become more expensive, as UK wage restraint continues.
These are not only restricted to ranges like high end skincare products; a recent report by the LSE found that food shortages and price rises could mean even dairy products we import from the EU like butter and speciality cheeses could become occasional luxuries, with milk products attracting tariffs of up to 74%.
In response, increased investment is being made in data analytics to make sure the right product is available to the right consumer at the right time. An example is the personalised online targeting of luxury items to those less likely to be impacted by price increases.
At the same time discussions are underway with retail partners about product placement on the shop floor, simplifying ranges and doubling down on the everyday essentials for the average consumer.
Unlocking further value from the supply chain is another key area being explored, with import duties and potential restrictions on the movement of goods leading firms to seek new UK based suppliers where feasible.
An executive at a global FMCG firm told me: “Brexit, like political turmoil, is not new for multinational FMCG giants as they face similar changes every year across the globe. However, the UK economy has always been a lucrative market for higher value per capita sales and Brexit will undoubtedly throw more caution in the spending power of the shopper.
“We need clarity on overall government policy and other rules to trade across the European region. For the UK to continue being the spearhead for business investment, any dynamic FMCG firm needs immediate clarity and stability on future government policy.”
With just over two months until the last European Council of 2018 – widely seen as the last possible date for an Article 50 divorce deal to be agreed – the clock is ticking. FMCG leaders needing certainty to plan a path to steady growth in a new post-Brexit economy wait in hope.