Notwithstanding the pre-Easter announcement of a transition “deal” the United Kingdom will cease to be a member of the European Union on March 29th, 2019. Any successful business relies heavily on certainty and for the food and beverage (F&B) sector this is critical.
Regardless of a business owner’s political views the business itself must prepare for Brexit. And what businesses now have are two certainties followed by a ‘known unknown’.
In this article we look at how these three phases are likely to affect the F&B sector through the eyes of an average UK small business and typical LawBite client. NuOatCo is an organic granola manufacturer in the west of England that sells most of its products through its online portal. It fulfils orders from across the UK, EU and even international markets and has been growing year on year since its first year of operation.
1st Brexit Phase - Certainty
The United Kingdom will cease to be a member of the European Union on March 29th, 2019. Until then we remain an active member of the Union and the regulatory and other laws made are still applicable.
NuOatCo will be sure of the labelling laws which apply to its branding. Its website and terms of sale will be covered by consumer protection regulations and right now it is probably getting ready for the May 25th implementation of the General Data Protection Regulations (GDPR). It will be subject to the same regulatory controls on hygiene as it has always been. It will continue to enjoy frictionless movement out of the UK into mainland Europe where it sells products and from where it sources some of its ingredients (for now). However, this is the time for a careful review. It should be looking at its sales chart and considering the future orientation of its sales strategy. Should it focus more on the domestic or non-domestic market? NuOatCo must look at all parts of its supply chain and the likely impact of Brexit on those elements of its business. From packaging, to ingredients, to sales and distribution, every aspect of the product will be subject to future price increases.
2nd Brexit Phase - Certainty
There will be a transition phase lasting from 29th March, 2019 to 31st December, 2020. During this period the UK will continue to follow EU rules and since the purpose of this transition period is to give businesses time to prepare for January 2021 it is being dubbed the “standstill period”.
For NuOatCo and any similar business this is the time for action. There might be contracts to be made with new suppliers and structural changes to the business which support either domestic market development or a commitment to international trading. This period is designed to give businesses the stability they need to resume investments so small businesses should take advantage of this phase.
3rd Brexit Phase - Known Unknown
By January 2021 the agreed deal is in place and, whatever is finally agreed, the UK has now left the customs union and the single market. This means the frictionless travel of UK goods and services across borders will end. With the former it also means goods entering or leaving the UK for European markets will be subject to tariffs and customs inspections. Customs duty is not a reclaimable cost so companies like NuOatCo will probably need to pass on those costs to consumers. Prior to this is an opportunity to get out ahead of pending increases with careful client communication and marketing strategies, which would be a useful approach.
As the UK is now a third country if NuOatCo wishes to keep doing business with the EU then its processes must maintain the EU regulatory standards applied to imports. This might be no bad thing for companies such as NuOatCo since their organic branding stamp presumes a commitment to higher hygiene values. If it has opted for a domestic focus, then it will have ramped up its marketing and sales campaigning and focused its development on increasing its market share at home.
Brexit has to be viewed as an opportunity and not a setback. Businesses will need their best, worst and how-can-we-make-it-work plans ready for implementation; for while successful businesses may thrive on certainty resilient businesses harness adaptability.
