Executive Insights:

The impacts of Brexit on the food

and beverage sector

Brexit is firmly at the top of the agenda for British and European businesses;
tactical protection of shareholder value being the number one priority. UK
companies, for the most part, are adopting a wait and see approach before
making wholesale strategic changes, banking on operational flexibility and
resilience to see them through any turbulence.

Our operations and supply chain are physically set only in terms of where they
are, but are flexible and constantly evolving. Its got to be in a FMCG company
because if you dont deliver what the consumer wants, youre stuck.

The UKs food and beverage sector appears to risk greatest exposure, given the
sectors workforce composition and the EUs current tariff structure. This article
summarises a conversation with a Senior Executive at a globally recognised British
FMCG company to understand what Brexit means to the sector.

Were not like the rest of the industry which has huge percentages of
European labour. Were far from that.

In the short term, the Foreign Exchange impact of a weakened Sterling is

understandably the sectors most pressing issue. For a company that imports from
all over the world: South America, the US, China, Poland the immediate impacts
are already apparent:
The key impact will be material and packaging costs If were buying in
Euros or Dollars, then the prices are going up for our GB business

Unlike the rest of the Food and Beverage sector in the UK, this British FMCGs exposure
to restrictions on the free movement of labour were judged to be relatively low

Food Manuf.
Domestic
Wearable Manuf.
Accommodation
Food + Bev Services
Science Research
Air Transport
Building Services
IT Programming

38%
32%
29%
27%
27%
22%
22%
22%

The Food and Beverage

sector will be the most
exposed to new labour
migration restrictions,
with 38% of the
workforce coming from

21%

Offsetting the impact, the currency shift has also presented some immediate,
indirect arbitrage prevention benefits:

Figure 2: % Foreign workers by industry

Obviously with the Euro coming down to 1.15 (from 1.30) there is likely to
be fewer grey imports of products from the continent to the UK, which might
have an upside

As such, tactical manoeuvres have overshadowed the consideration of a

strategic response.

The view on the implicit trade-off between the free movement of labour and free
trade was pessimistic; the risks and opportunities to the sector being dependent
on the UKs ability to negotiate and secure acceptable trade deals with both
Europe and the Rest of the World.
Its such early days and theres so much confusion in the market as to what
the trade deals could be or what the trade deals might be If we are hit with
big tariffs for trading with Europe, then obviously that will have a really critical
impact on our business.
Sugar + Confect.
Beverages + Tobacco
Animal Products
Cereals and Preparations
Fish, Etc.
Clothing
Fruit + Veg
Textiles
Coffee + Tea
Oilseeds, Fats, Oils
Chemicals
Other Agricultural
Transport Equipment
Leather, Footwear, etc.
Electrical Machinery
Petroleum
Minerals + Metals
Non electrical machinery

38%
21%
20%
17%
12%
12%
11%
7%
6%
6%
5%
4%
4%
4%
3%

Currently, the EU puts

the greatest import tariffs
on FMCGs, putting food
and beverage companies
at highest risk

3%
2%
2%

Figure 1: EU Tariff Rates by Product Group

A mix of operational resilience and low labour exposure were reasons for
optimism in the face of this uncertainty:

www.wilsonperumal.com
thamnett@wilsonperumal.com

30%

Our strategic planning hasnt necessarily changed... What I would say is that
Brexit has accelerated our more tactical planning in terms of what we are
going to do mitigate the impacts for our investors. For that, theres a lot of work,
as there will be in every company now. Is that a cost saving programme? Is it a
price-increase programme? Theres a lot that can be done
Immediate interest will be in whether the pounds depreciation is enough to
offset the potential costs of possibly having to operate outside the Single Market.
This, along with the impending Brexit negotiations mean a range of unknown
scenarios that appear nearly impossible to prepare for. As impacts do precipitate,
FMCGs will likely need to rebalance operations accordingly. The priority must be
to understand the level of exposure to the issues at stake, as well as any internal
barriers to the ability to flex or improve. Successful firms will:
Build resilience into strategy and operations - Many firms have decision-making
processes too cumbersome to allow rapid response to imminent disruption. Dynamic
scenario planning requires appropriately dynamic operations, built with uncertainty in
mind and foster a culture where established norms are constantly challenged
Know which products, services, suppliers, assets and customers drive
revenue and costs across their portfolio. Hidden costs could well become
determinant of competitiveness for businesses with exposed linkages,
products, assets and geographies
Address and optimise impacted areas of their Operating Model (i.e. who
does what where; how best to deploy assets; how to use partners). Operating
models must be fit for purpose and aligned with both strategy and the business
environment in which they play.
Do you know how exposed your business is to these issues under different
Brexit scenarios? Are your operations resilient and flexible? And what are
the internal barriers? WP&C advises FCMG and retail companies globally on
complex strategic and operational issues.

Wilson Perumal & Company, Inc.

Wilson Perumal & Company, Ltd.

One Galleria Tower, 13355 Noel Road

Suite 1100 Dallas, TX 75240

Longcroft House, 2/8 Victoria Avenue

London EC2M 4NS, United Kingdom