Despite continued uncertainty around Brexit, the Scottish food and drink industry remains buoyant, with exports rising.
Even with the additional strain on market confidence, the sector remains a national success story, with a recent Scottish Government report showing an 11% increase in food and drink exports in the first quarter of 2017, generating around £1.2billion. Paula Holland, Director and food and drink sector lead for KPMG in Aberdeen, believes that if the sector is to continue to be a success, it must identify and plan for the anticipated financial challenges of leaving the EU. Paula said:
“We are now more than a year on from the announcement of the EU referendum decision, and financial fluctuations and increased costs continue to impact on Scotland’s food and drink industry.
To ensure ambitious growth targets are met and Scotland strengthens its competitive position both in Europe and globally, the sector must identify and plan for anticipated financial challenges of leaving the EU.
“In the short-term, financial pressure on food producers could potentially be reduced by passing supply chain costs induced by supermarket margins on to the end consumer. However, fiercely competitive pricing in food retail has made it increasingly difficult for food producers to share costs at the final retail stage.”
The Scottish food and drink sector has traditionally focused on a relatively narrow band of products, and is geared towards recognised brands and high quality reputations. While in the past this has protected pricing, Paula points out companies must not become complacent:
“Scotland’s food and drink sector must remain agile and continually adapt and innovate in response to rapidly changing customer trends. In facing cost pressures head on, it is vital for companies to adopt more flexible thinking and continually assess business strategies, such as using alternative supplier partnership models or driving innovation and substituting raw materials.
“The anticipated time to agree and implement new EU trading terms will also present a window of opportunity to consider potential scenarios and plan for these anticipated challenges and market trends in both the short and long term.
“Now is the time to consider any requirements to establish EU subsidiaries, apply for European regulatory licenses, and run defensive scenarios to consider business resilience in the face of changing VAT or custom codes, reduced access to EU migrant workers, or increased costs of storage and warehousing overseas.
“Looking ahead, the ability to manage and adapt to import requirements, labour needs, and relevant legislation such as fishing rights, will help provide some competitive advantage. Market consolidation will also play an important role in Scotland’s future success story, especially with international interest high on the back of favourable rates caused by Brexit.”
KPMG’s 2017 Top of Mind Survey additionally highlights the significance of customer service in the eyes of consumer facing business owners, with one in three (36%) consumer and retail executives surveyed ranking consumer trust and loyalty as their number one priority.
Concluding, Paula Holland said:
“As the sector continues to respond and adapt to both the challenges and opportunities of a Brexit decision, future winners will be those companies that have a resilient supply chain, a responsive strategy, and an excellent customer relationship. With our Global Change Readiness Index ranking the UK the 10 th most ready for change, it appears business is keen to get itself ’Brexit ready’. Those companies that plan for forthcoming change will steal a march on those that don’t.”