The effects of Brexit on beverage companies

11/07/2016 - 23:00
Brexit will have critical implications for the beverage sector, given the UK’s role as both a major importer (e.g. wine) and a major supplier (e.g. scotch) according to Rabobank.

The food & agribusiness research and advisory company are “rightfully concerned and are actively developing contingency plans. They will find that there are a number of short- and long-term strategic alternatives that can mitigate risks and help them to take advantage of new, attractive opportunities, including shifting sourcing and geography for production/value-add, pipeline loading, hedging and shifting market focus.”

Despite the UK having a fairly open beer market (around 18 percent of consumption volume is imported, and 13 percent is exported), most of the leading brands are owned by international brewers, and may decide to change business models, from imported to licensed beer. The local British brewers could see domestic competition ease as foreign competitors are affected by weakness in the British pound and the long-term threat of trade barriers.

The prospect of the largest wine-importing country in the world leaving its free trade agreement with the largest wine-producing region in the world will impact trade flows in the long-term. In the short-term, the devaluation of the pound will lead to the EU needing to find new markets, due to the decreased demand.

British spirit imports, including Cognac and Bourbon, will be directly affected by the weakness of the pound. In the near term, scotch suppliers will be able to find opportunities for scotch exports, however the prospect of loosing the free trade agreement with their largest market is causing concerns for scotch suppliers.

Decisions considered for transportation costs and capacity optimisation for soft drinks are likely to be re-evaluated, with most changes taking place in the carbonates. In the case of bottles water, companies may move part of the value chain, such as bottling, closer to the consumer. In juices, the UK may have to look to local alternatives or changing the country of origination, instead of importing tropical fruits, but sometimes changes are impossible or undesirable.

To read the full report by Rabobank, click here.

By Alex Leggatt

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