The continued lack of clarity surrounding the nature of the UK’s future relationship with the EU is having a significant impact on FMCG suppliers and their commercial relationships with their key supermarket customers.
This is according Jimmy Saunders, a director at global finance advisor Duff & Phelps. He highlighted that the Brexit uncertainty means many manufacturers are having to stockpile both raw materials for production and finished goods to ensure their product stays on shelves and they meet customer demand. “This is placing a further burden on working capital which is locked up in stock at a time when investors are cautious about increasing lending,” said Saunders.
“In the event of a no-deal Brexit, which is still very much on the table, suppliers will also have to deal with fluctuations in Forex and additional tariffs, which could impact raw materials coming in from Europe.”
The current climate of uncertainty is also said to be having an impact at the very top, with company directors increasingly “waiting to see” what happens next, resulting in strategic business decisions such as CAPEX investment being placed on hold. Longer-term productivity levels have experienced a marked decline in growth in the UK since 2008 and with investment in future productivity on pause, Duff & Phelps suggests that companies may be creating problems for the future when UK PLC finds itself improperly equipped to compete in the post-Brexit world.
Saunders added: “The Brexit ambiguity seems to have whipped up the perfect storm, with manufacturers and suppliers of FMCG currently facing several other challenges. Following an increase in supermarkets’ use of discounting and double-up promotions, suppliers have found themselves increasingly vulnerable and under pressure to fund their customers’ promotional activity through buying premium shelf space or funding discounted products. Although this may lead to a short-term spike in sales, the constant race to the bottom on pricing is predominantly funded out of the supplier’s pocket.
“Navigating the uncertainty of Brexit and the commercial relationships with supermarkets are going to be challenging tasks for manufacturers and suppliers of FMCG. However, with clarity coming imminently on the nature of the UK’s future relationship with the EU, there is optimism that businesses should be able to start making plans for investments in driving productivity and adapting to the UK’s new business landscape.”
NAM Implications:
- Meanwhile, considerable opportunities for pragmatic NAMs that can react fast to changing business conditions.
- i.e. anyone that waits until it all settles down will find themselves competing with 95% of the business population…
- Practical financial skills and insight can help…
- Welcome to the new NAM world…
