Five years on from the UK’s departure from the European Union and, whilst it is too simplistic to blame all the problems confronted by the FMCG and grocery sectors on Brexit, suppliers will need to develop new strategies to weather storms being caused by growing geopolitical issues, an industry specialist has said.
“Looking back at the impact of Brexit on the FMCG food and drink sectors, it is a near impossible task to consider the effect of Brexit in isolation,” said Patrick Finlay, Managing Director of The Category Management Company.
“Against the backdrop of Covid, Ukraine, the ‘Mini-Budget’ interlude, climate records being smashed, the Employers National Insurance bombshell and of course the impending Trump tariff factor, even the most talented econometrician would struggle to ascertain the granular effect of Brexit.
Finlay noted that this is because there is conflicting evidence. “A study by Ashton Business School on trade post-Brexit suggests that imports have dropped by 30%, whilst another by the Centre for Economic Performance suggests it is as little as 6%. That’s quite a difference,” he said.
“Conversely, services had grown by 14%, according to the Resolution Foundation in February 2024. So, it is, at best, inconclusive. This has not been ideal for UK retailers importing from Europe but, given their size and importance to the UK economy, they have weathered it pretty well.”
But Finlay points out that Covid clearly had a major impact on retailer operations and e-commerce, with the ONS reporting in 2021 that the immediate impact of Covid was that total retail sales volumes fell by 1.9% compared with 2019, the largest annual fall on record.
“The impact on specific sectors did vary,” he said. “Clothing and fuel volume sales saw large falls of 21.5% and 22.2% respectively in 2020 but online sales rose to a record high of 33.9% as a share of all retail spending. During this period, according to the Competition and Markets Authority (CMA) in July 2024, UK grocery retailer weighted operating margins dipped below 3% in 2020/21 but only marginally from the previous year.”
Finlay highlights that the challenges continued with the war in Ukraine, which seems to have had a deeper and more prolonged impact on UK retail than Covid.
“Whilst with Covid, the world pulled together, this war has pulled it apart,” he said. “The economic ramifications have reverberated globally and no less so than in the UK. Global wheat prices at the time surged by 28% in the early stages of the war and oil prices exceeding $130 per barrel compared with around $75 today, creating all sorts of pressure on supply chains. It was during this period that UK grocery retailer weighted operating margins dipped well below the 2% of 2020/21, the CMA reported in July 2024. This is wafer thin and flirting too close to a negative for anyone’s liking.
“You also need to add in the impact of the Tory mini-budget in September 2022 and, more recently, the increases in Employer’s National Insurance contributions from 13.8% to 15% announced by Rachel Reeves, which take effect this April. It is this most recent economic event that major retailers are already citing as a contributing factor to redundancy announcements, with multiples now seeking ways to cut costs to remain price competitive.”
Finlay also noted the possible impact of tariffs by President Trump: “The UK imports around £111bn of goods from the US, but only a small percentage of this is food related; exports represent £2.4bn to the US, making it our third largest export country after Ireland and France. Whilst relatively small in UK grocery terms, any form of additional tariff will add further pressure onto a fragile, at best, cost base, thus impacting further the burden on retailers and ultimately their customers.”
So, considering all that has happened in the past five years, Finlay states that Brexit cannot be held solely accountable, given that retailers are operating on wafer-thin margins with major global events occurring at the most alarming rate since the Second World War.
“Most suppliers, without very deep pockets, will need to develop their own strategies to weather these storms,” he said,
“Their longevity will be predicated on the ability to demonstrate initiative, a desire for positive change, and a strategic mindset. It has been proven that investing during the most turbulent times has generated long-term benefits. This can take the form of above-the-line investment, which leads to long-term loyalty. But also by developing long-term strategies, category visions for example.
“Setting out the roadmap today by planning a strategic course for the next three to five years to deliver value-added volume and to deserve to win a place at the table. By devising a category vision, suppliers are taking a proactive stance to help elevate category direction by providing shoppers and consumers more reasons to shop and consume and provide their own buffer to the unpredictability now entrenched in the natural and geo-political landscape.”
NAM Implications:
- It could be said that Brexit was more about sovereignty than economics…
- And given that current and anticipated global trading issues could have greater impact on businesses than Brexit…
- …perhaps UK businesses might be better employed focussing on
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- Acknowledging the global threats
- And optimising the global opportunities
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- Of their post-Brexit freedom?
- Over to you…
