It’s exactly one week since 30 million people across the UK, voted in one of the most important referendums of our time. An overall majority of 52% won the vote to leave the EU with 48% choosing to remain. The immediate impact of this result was realised by a drop in sterling overnight to a 31 year low against the US dollar. In the last few days however sterling has stabilised with EUR/sterling trading around the 82p mark. Global stock markets have shown signs of recovery since last week. The FTSE 100 in fact is higher now than it was a week ago, however, the more domestically-focused FTSE 250 index, despite rising 3.2 per cent on Tuesday, remained 7.7 per cent down from its pre-referendum result close. Mark Carney, Governor of the Bank of England has given a more pessimistic outlook signalling interest rate cuts could be on the horizon next month. But what does Brexit mean for those of us operating in the grocery industry?
Consumer Confidence:
The latest pre-Brexit figures from the GfK Consumer Confidence Index show confidence is languishing in negative territory with “plenty of volatility” expected ahead – at least until Brexit negotiations are under way. The index shows “deepening pessimism” over the general economic situation, with the measure already 18 points lower than this time last year. This is likely to impact spend on bigger ticket items and potentially eating out spend as consumers become more concerned about their finances.
Sarah Boumphrey, global lead for economies & consumers at Euromonitor stated ‘Overall we’re not expecting a cataclysmic impact on consumer spending. Those categories that will be most affected will be the discretionary items. Staples aren’t driven by changes in income to the same extent. Euromonitor expects a number of sectors to feel the brunt of any post–Brexit changes, particularly confectionery, ready meals, snacks, fresh produce and soft drinks.
Food Price Inflation:
Food price inflation is expected in the grocery retail market in the medium term as a result of increased cost of imports from the EU. It remains to be seen whether retailers will pass on price increases to consumers in the short term given the competitive nature of the retail market. Sectors like fresh produce will come under pressure more than others with many sectors protected in the short term as retailers will have existing currency hedges and contracts in place with suppliers.
Some senior retail analysts see food price inflation as a positive, Bruno Monteyne from AB Bernstein has highlighted that ‘it may ease the deflationary pressures eating into supermarket sales and margins’. He cited that ‘every 10% fall in the pound means 3-4% more food inflation. Retailers will be able to pass most of this on to consumers, driving like for like sales, investor sentiment and valuations’.
Outlook:
Retailers and foodservice operators are reluctant to predict what will happen over the coming weeks, months and years. Some retailers and foodservice operators have given assurances that their businesses are in a good position to weather the political and economic headwinds ahead. However, many are not openly commenting on the current situation or how it might impact their business.
Irish Exports to UK:
The UK is our largest single export market with over 41% of Irish Food and Drink exports worth €4.4bn coming to the UK market last year. The UK will remain a key priority market for Irish food and drink suppliers given the geographic proximity, common language and similar consumer tastes. These factors will not change. Many Irish suppliers will have experienced currency fluctuations of this magnitude and worse in the past. It is the uncertainty of Brexit which is unprecedented and causing concern for everyone. Trade customers Bord Bia have spoken to have said they are taking a ‘wait and see’ approach to the situation stating its ‘business as usual’ for now’.
For more information contact michelle.butler@bordbia.ie.
Source: Bord Bia – The Impact of Brexit on the UK Grocery Market
