Localise supply chains post-Brexit, supermarkets told

27 June 2016

After last week’s Brexit vote, UK supermarkets need to “double-down on unlocking value from the supply chain” a report from Kantar Retail has said.

Retailers will need to consider localising their fresh produce suppliers “to accommodate the higher cost of purchasing items sourced in euros,” the consultancy firm said. 

The report also warned consumer concerns over how Brexit will affect their finances could change shopping habits. “Shoppers, facing uncertainty, are likely to cut back on spending and delay large purchase decisions,” it said.

Outlining the immediate, near-term and mid-term effects of the Brexit vote, the report said retail companies with their headquarters inside Britain “will primarily be concerned in the early stages about the financial market effects”.

“In the short-term their ability to import goods from the European Union will be adversely effected by a weaker pound:euro exchange rate,” it added.

After the immediate market and currency turmoil has passed, the report said retailers’ attention would turn towards sourcing domestic suppliers in a bid to avoid price inflation on goods from Europe, particularly fresh produce such as dairy.

European supply chain costs “are likely to go up due to higher trade tariffs,” the report said.

“The prices of fresh produce will definitely go up as much of this is sourced from the EU. In the case of Tesco, for example, almost 50% of butter and cheese consumed in the UK comes from milk sourced from EU markets,” it added.

Not all supermarkets will be affected equally the report said. European-based discount supermarkets such as Aldi and Lidl will benefit from the weaker pound, as their investments in euros will now be worth more.

The report added Aldi and Lidl have also been “the most proactive in driving provenance and localism” with their fresh produce suppliers before the Brexit vote, and as a result are likely to be the least affected. “Indeed they may be the ones to benefit in the short and medium term,” it said. 

In the longer term, “beyond the obvious work around procurement, HR and investor relations”, the report said supermarkets need to prepare for potential changes in regulation. 

However, the long term picture “will only emerge after negotiations take place”, it said.

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