Peter Backman examines the fallout of the Brexit vote and the dangers ahead for wholesalers
The Brexit vote has come as a shock to many, not least the many investors, operators and suppliers across the UK’s hospitality and eating out sectors, and by implication, wholesale foodservice suppliers. We have already seen the acrimony beginning over how we move forward from here: when to leave Europe, how to leave, and if we can negotiate favourable trading terms as we go.
It’s no surprise that we are in a fallout phase, with accusations flying from both sides of the argument about the impact this will have on our trade, economy and, not least, consumer sentiment. This fallout phase will continue until the government announces exactly how and when our exit might occur.
But the truth is that no one really knows what the full and lasting implications of Brexit would be on UK businesses involved in the eating and drinking out trade. It will take years, if not decades, to assess the full impact and whether it is ultimately beneficial or not. The issue has also now been clouded by questions about whether Article 50 of the Lisbon Treaty will ever – and even could ever – be legally activated to initiate our departure, as well as resignations on both sides of the house, so the result for now is likely to be caution and nervousness in the business community for the forseeable future.
This sustained period of uncertainty will be ongoing as Britain’s government stabilises.
In the next few months, the UK’s eating out sector is going to be less buoyant than it would otherwise have been, a situation that could affect foodservice wholesalers’ short-term targets. The biggest immediate losers will be restaurants, fast-food outlets, and contract caterers with heavy exposure to the business and industry sector where their clients have strong international interests or international ownership. Wholesale foodservice businesses need to prepare their businesses for the knock-on effect of this.
Cost of imported foods
Another issue facing businesses in the grocery supply chain and the hospitality sector is the likelihood that the cost of imported foods will rise. In hospitality, food accounts for around 30% of operators’ total costs, so an increase of say 10% wipes off 3% from a company’s gross profit. For businesses operating on slim margins – a situation most wholesalers can relate to – this could see their entire gross profit wiped out.
In the short-term, such volatility is inevitable. More worrying would be an ongoing change in consumer sentiment, as this would seriously harm the supply chain and the consumer-facing businesses it serves. Reduced sales coupled with increased costs mean reduced profitability. How this plays out depends on the success of any exit from the EU and the trade terms we negotiate on our way out, as well as whether we have a firm hand on the tiller to guide our exit and dampen alarm.
This uncertainty means investment is likely to be postponed, primarily in restaurants and fast-food chains that have been actively expanding across the UK and Europe, and the impact of this is likely to be felt in the supply chain, too.
We are therefore looking at a smaller market than Horizons estimated in March, with elevated costs and uncertainty over employment and investment. But while demand might be lower than it otherwise might have been, the foodservice and hospitality industries and their suppliers are resilient, and will recover in time. And as Britain finds a new place in the world, any benefits of an exit might start to be revealed.