It’s now been five years since the UK officially left the European Union. Against the backdrop of Covid, Ukraine, the ‘mini-budget’ interlude, climate records being smashed, the National Insurance bombshell, and of course impending Trump tariffs, even the most talented econometrician would struggle to ascertain the granular effect of Brexit on the grocery sector.
Brexit was often used as a scapegoat by suppliers in the early days, but has since been superseded by other events. The common denominator in supplier responses today – except Covid – is that all are ‘politician-led’.
A study by Ashton Business School on trade post-Brexit suggests 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. Conversely, services have grown by 14%, according to the Resolution Foundation in February 2024. So the evidence 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 well.
Covid clearly had a major impact on retailer operations and e-commerce. The ONS reported 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”. During this period, UK grocery retailer weighted operating margins dipped below 3% in 2020/21, according to the Competition and Markets Authority – but that was only a marginal fall on the previous year.
The challenges have since continued with the war in Ukraine. The conflict seems to have had a deeper and more prolonged impact on UK retail than Covid. 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 exceeded $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.
You also need to add in the impact of the 2022 mini-budget, and more recently, increases in employers’ National Insurance contributions, which take effect this April. Major retailers are already citing this as a contributing factor in redundancy announcements, with multiples seeking ways to cut costs to remain price competitive.
Now there is the prospect of the US imposition of tariffs. 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. That will further increase the burden on retailers and ultimately their customers.
Major global events are occurring at the most alarming rate since the second world war. So suppliers will need to develop their own strategies to weather these storms. 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, and also by developing long-term strategies like category visions.
Start today by planning a strategic course for the next three to five years. Only then can you hope to deliver value-added volume and win a place at the table.
Patrick Finlay is MD of The Category Management Company
No comments yet