Posted by: Richard Walters Wednesday 14 December 2016 16.01

Part 5 of a 6 part Food and Drink Brexit series

It is too early to predict with any certainty how Brexit may impact businesses, particularly without clarity on exit terms. However, businesses can consider the emerging scenarios that may arise as result of UK-EU negotiations. The extent to which firms are affected by, and can react to these scenarios, depends on a number of factors including geographic scale, levels of existing investment in the UK, and industry sector. Until then, the UK will continue to have full access to the single market without any tariffs or regulatory restrictions.

This six part Brexit series examines some of the key focus areas that businesses should consider when looking at their supply chains and longer term growth strategies.

Part 5: Impact on profitability

Firms are already reconsidering their capabilities and developing different options in the wake of Brexit. Any reduction in consumer confidence or reduced spending due to longer term inflationary pressures, will see revenues under pressure whilst costs are only likely to increase given the weak pound and increasing complexity. UK grocery, manufacturing and distribution are already experiencing very tight operating margins and will need to develop effective strategies just to sustain current levels.

What should businesses consider and what can firms do now?

• Develop economic models that accurately reflect the operating model of your business in order to understand cost levers better and allow them to explore different scenarios and the impact on company profit. The model variables must be at both the macro (e.g. labour rates) and micro (e.g. productivity rates) level to generate the best assessment of possible outcomes.
• The scenarios that are modelled should reflect those that are possible; in the context of Brexit this could be the adoption of the WTO tariff model, or an increase in labour rates over the longer term. Models should allow outcomes to be reviewed over the short (1-2 years), medium (3-5 years) and longer terms (10 years+) to understand how the impact of available levers might change over time.
• Through modelling, firms can filter out the noise surrounding Brexit and identify the levers that really matter to them, allowing for more informed decision making.

Contact

To discuss how we can help your food and drink business, contact Richard Walters, Principal Consultant on 01442 872298 or by .

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Food and Drink Businesses Blog Series: The impact of Brexit of your supply chain

Part 1: The customer proposition

Part 2: Sourcing and supplier base

Part 3: Production and distribution networks

Part 4: Talent and skills

Part 6: Capital investments