The big issue: Brexit business

The big issue: Brexit business

It’s a bit like watching a car crash in slow motion. It’s hideous to the point that even attempting to read a newspaper or watch the unfolding of the day’s parliamentary events on TV is unbearable. The 70-year-long post-war consensus appears to have irrevocably broken down, as our political class, psychologically speaking, continue their name-calling and mass hysteria.

This was meant, dear reader, to be the definitive article in the run up to D-Day – 29th March– when we were supposed to officially exit from the European Union (EU). By this stage, so late in the day, we would have surely known the details, whatever our so-called democratic representatives had thrashed out with Brussels.

Business, like nature, abhors a vacuum, but what will eventually emerge from this unedifying spectacle? Hard, soft, or no Brexit at all? It’s anyone’s guess. Parliament may be in process of wresting control over the Brexit process from the government, but neither seems capable of agreeing on a way forward from the present quagmire.

The economy has proved itself remarkably resilient, however – in truth far better than most of the pundits maintain and with growth of 1.2% on par with that of Germany and France. Britain’s recently published January statistics, which tend to reflect a lag effect in how the economy really has been performing, show a big improvement in the UK’s public finances – something that must seem like an embarrassment to chancellor Philip Hammond, who has been predicting nothing but gloom and doom on the back of the Brexit fallout. Our national trade deficit reveals that exports rose to their highest levels since records began, while the UK budget deficit shrank to its smallest level for more than 10 years. Public finances now look better than they did six months ago. Public debt has fallen by a significant £2.7bn to £22.8bn, with most of the improvement due to higher income and capital gains tax receipts. The cumulative adjustment over the six-years to 2023/24 amounts to £30bn, lowering the total net borrowing requirement to £119bn and leaving the budget deficit at 0.5% of GDP at the end of the forecast period.

Yet public confidence has crashed through the floor to something closely akin to despair. As Venezuela tells us, even the most successful economies can implode when locked in mortal battle over ideology. Sheer pig-headedness, malign ill-will and the complete inability to see any other point of view but one’s own – also, incidentally, the true definition of that loosely bandied insult, a fascist – can lead to the sort of tectonic rifts that destroy families, friendships and societies.

Certainly a lack of confidence, rather than despair, has permeated the normally resilient hospitality industry, which collectively accounts for the UK’s third largest private sector employer. “The hospitality sector has historically proven resilient and innovative, but the unprecedented confusion and uncertainty since the referendum has provided stern tests with no relief seemingly in sight, “ complains Kate Nicholls, chief executive of UKHospitality, the new industry trade body resulting from the merger last year between the Association of Licensed Multiple Retailers and the British Hospitality Association.

In contract catering, as in the rest of the foodservice industry, those pressures are mounting. UKHospitality’s report late last year warned that growth in B&I continued to be subdued, with it not so much deriving from an expanding market but rather from cut-throat competition between businesses – something that has always been a feature of the market, but which is likely to intensify this year. A no-deal Brexit, in a sector where food price inflation and a distinctly tight labour market are already biting into margins, would be truly “dreadful news” for the sector, warns Nicholls. “We need to devote our time to addressing the challenges a no-deal Brexit is inevitably going to produce and there is just no option of doing business as usual,” she says.

Britain’s foodservice sector knows it must prepare for the very worst scenario that may emerge. Not to do so would be a dereliction of the proper due diligence that any business needs to undertake. Brexit is inevitably unwelcome as it shifts emphasis from food and service to procurement and process, something the industry has endeavoured to move away from in recent decades.

While Nicholls and her colleagues at UKHospitality hope parliament will somehow definitively rule out a no-deal Brexit, all normal business has already been put on hold. “We need to devote our time to addressing the challenges a no-deal Brexit is inevitably going to produce and there just is no option of doing business as usual,” she says.

That sentiment is shared by the Danish-based facilities management provider ISS, a company whose operations encompass 70 different countries, which is also heavily engaged in the UK contract catering market. ISS has been involved in an ongoing risk management review over Brexit, working on plans with frontline chefs to replace imported perishable fresh produces with as much locally-sourced produce from the UK as it can for the possibility of a no-deal Brexit outcome. “Obviously we can’t stockpile perishables, but our suppliers have been increasing stock of non-perishable foods as well as frozen goods,” says Craig Smith, head of corporate affairs for ISS in the UK and Ireland.

That approach has been echoed elsewhere in the industry with organisations such as the United Kingdom Warehousing Association (UKWA) reporting a strong upsurge in demand for additional warehousing to stockpile additional food supplies. “We are facing a perfect storm in the warehousing and logistics industry, with little speculative build in the pipeline, urban development land earmarked for residential but not for the warehousing required to fulfil rising consumer demand, and a severe labour and skills shortage, exacerbated by the ‘Brexodus’ effect as Eastern European immigrant labour heads home,” says the UKWA on its website.

Major food warehouse and logistics companies such as Bidfood, with some 48,000 customers, has made moves to reassure customers that contingency plans are firmly in place. In recent months the provider has engaged directly with government departments, including UK Customs as well as the EU, to plan along with the Federation of Wholesale Distribution to plan for a no-deal outcome. Bidfood has also contacted more than 700 of its core suppliers to identify and mitigate possible areas of risk in its main produce supplies from the EU. “We have identified alternative products for those which we believe are at risk, as well as lines where we feel we need additional stocks,” says Jim Gouldie, director of supply chain and technical services for Bidfood.

But while concerns over Brexit have prompted many companies to stockpile non-perishables, this in itself could lead to panic-buying and long-term problems, warns Richard Wilding, professor of supply chain strategy for Cranfield University, who likens the current panic buying being displayed by manufacturers and consumers to that shown over ‘the Millennium bug’ at the turn of the century. “While it might look like a sensible response to uncertainty, this kind of Brexit anxiety will have long-term implications for supply chains and for the UK economy as a whole,” he told City AM in an interview last month.

Such instincts, while potentially beneficial in the short-term, could cause fluctuations in demand and impact companies as stocks are run down, rather than new purchases. Decisions needed to be based on what was prudent and necessary, rather than on knee-jerk reaction, he argues, “otherwise stockpiling could be a bigger problem for Britain than even the most chaotic Brexit”.

The shortage of foreign workers is another major challenge, especially in the south-east. Many have already started to return home, driven partly by Brexit uncertainties and also by sterling’s current weakness, which has done much to undermine any economic advantages of their presence here.

ISS, like other contract caterers, is aware of its own potential vulnerability on this front, something accentuated by its wn Brexit taskforce, which is spearheaded by UK and Ireland main board director Stephanie Hamilton and meets on a weekly basis to review the latest market and political intelligence.

The company, as part of this process, has undertaken a full audit of its current UK staff by country of origin. As a snapshot, some 63% of employees are UK nationals, with a further 18.7% of the workforce being comprised of EU nationals and 18.3% from non-EU countries. In London and the surrounding M25 area, however, UK nationals make up only 31% of ISS’s workforce, with 34.3% and 34.7% being EU and non-EU nationals respectively.

While ISS has achieved the highest possible rating given by the International Association of Outsourcing Professionals for the seventh consecutive year, including praise for its strong employment practices and career paths, it shares a number of concerns with others in the facilities management arena. Soft FM could be especially affected by reduced access to European Economic Area nationals, a part of the world that the industry tends to recruit from heavily, including for managerial positions. If free movement is stopped, the FM sector generally is also likely to “have a particular problem filling entry level roles, which are often used as a stepping stone by EEA nationals”, warns ISS in one of its regular briefing papers.

Given such threats, it is hardly surprising that proactive employers in catering, such as ISS, are investing in workplaces of the future, flexible apprenticeship programmes, and wider employment policies that encourage people to return to work. Boosting productivity – doing more with less without overburdening existing teams – will be among the major challenges.

As Brexit madness prevails in the political arena, the country and business just has to get on with things. If you can keep your head when all about you, are losing theirs… if you can trust yourself when all men doubt you, as Rudyard Kipling wrote, perhaps we can make the very best of the uncertain times we face.

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