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Brexit impact on consumer spending
Potential implications for consumer goods companies
On March 29, 2019, the United Kingdom could officially leave the European Union (EU). With much uncertainty still surrounding Brexit—including its economic impact and implications for United Kingdom-based companies—what steps can consumer products companies take now to prepare?
- Preparing for eventuality
- Brexit’s impact on CPG companies
- Potential strategies to prepare for Brexit implementation
- Don’t wait to start planning
- Let's talk
Preparing for eventuality
Virtually all companies will be affected in one way or another by Brexit. And it’s likely that the implications will vary based on a company’s individual situation. To be better prepared for the new and yet-to-be-defined agreements, consumer products (CP) companies could benefit from developing strategies using scenario planning to respond to the varied policies that may ensue.
An analysis of economic indicators since the Brexit vote suggests both consumers and businesses have yet to feel material impacts, even though shifts have occurred in consumer confidence and retail sales.
It’s not clear what this could foreshadow for Brexit’s economic impact on the UK, but companies could benefit from being prepared for any eventuality.
Net percentage of consumers who said their level of confidence has improved in the past three months
Brexit’s impact on CPG companies
Negotiating the terms of Brexit is a highly complex process that is continually evolving and changing as March 2019 approaches. For CP companies, there are implications related to a calculus of interrelated factors, including:
- The terms of exit and any transitionary arrangements
- The nature of the ongoing relationship model between the EU and UK
- Company location
- Market access and tariff/non-tariff restrictions
- Supply chain
- Product labeling laws
The finer details of the Brexit negotiations are dependent upon the actual Brexit model agreed upon between the EU and UK. There isn’t an agreed definition of either “hard” or “soft” Brexit, but they generally mean:
Potential strategies to prepare for Brexit implementation
With March 2019 in sight and still so much to be decided, CP companies could benefit from scenario planning in which they lay out the scenario of maximum change and identify ways to mitigate any negative impact while maximizing positive outcomes.
The potential strategies can vary for each company and circumstance, making this a customized process. But to begin, companies could benefit by preparing for a “hard” Brexit. This sets the stage for outlining potential outcomes on other issues discussed below:
Market access and tariffs
In any Brexit scenario, there likely will be an increase in the costs associated with the movement of goods between the UK and EU due to tariffs—which will either be passed on to consumers or will negatively impact a company’s profitability. CP companies should outline how these additional costs will be dealt with to help ensure that their goods remain competitive in the EU market.
Location of company headquarters
For large multinational CP companies who face a number of regulatory issues across the world, Brexit could very well be treated as a “local” issue affecting a single market. Whereas UK-based companies with cross-border supply chains will likely face a much more complicated situation.
As noted, UK-based companies with a multi-country supply chain are likely to be impacted more than countries that have a simpler and UK-specific supply chain. And Brexit is likely to make the movement of consumer goods through existing supply chains more complex, costly, slow, and difficult to execute.
To counteract this, companies may need to invest in surplus storage and warehouse spaces in multiple locations to help offset for delays in the movement of goods. Changes will also likely need to be made to IT systems to cope with the almost inevitable increase in administrative work tied to importing/exporting goods between the UK and EU.
Since many EU nationals will likely be impacted by Brexit, and some are already leaving the UK due to uncertainty about their positions, companies will likely need to plan for a scenario in which there’s a depletion of talent. CP companies may also want to consider the extent to which they’re willing to sponsor visas or work permits or EU nationals in the UK.
Product labeling and safety
UK-based CP companies will likely have to assess the benefits of continuing to adhere to EU standards for product labeling and safety. On one hand, since EU standards are among the strictest in the world, UK companies may want to continue to EU standards to help ensure continued access to EU markets. However, post-Brexit, there could be a gradual dilution in standards for any number of reasons—from lowering production costs to changes in market communications.
Don’t wait to start planning
With the Brexit implementation date looming, it’s never too early for CP companies to proactively plan for any outcome. The continued uncertainty CP companies face while waiting for specific policy decisions should not be an impediment to preparation. Through scenario planning, companies can be steps ahead in the planning process and in a stronger position than they otherwise would be on March 29, 2019.
To learn more about the impact Brexit could have on consumer goods companies and potential strategies they can begin to implement to prepare for Brexit implementation, download the full report.
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