How my food business will adjust to Brexit challenges

The British decision to end its 43 years as a member of the EU – and as a positive influence within the European market – may have significant implications for Irish SME food businesses, such as our new biscuit producer East Coast Bakehouse. Over the past few weeks we have considered the implication of this possible outcome, but did not really believe it would happen.

As a new large-scale food manufacturing business, core element of our business plan has been to secure export revenues in the UK market, both launching our brands there and bidding for retail private label contracts of the UK grocery retailers.

These aims remain unchanged, and we are confident that we are well positioned to take on these additional challenges.

The UK will remain as our most important export market; the British consumer tastes are closest to our own and packaging formats are the same. That will not change as a result of the referendum result. Our efforts to build new business with British retailers will be redoubled, taking on board the implications of Thursday’s decision.

Our contingency planning for this outcome includes both responding to the immediate short-term issues and, more importantly, ensuring that our competitive position in the coming years allows us to build a sustainable and profitable new business.

Access for East Coast Bakehouse, like all Irish food business, to the UK market is not immediately changed in any way. Revisions to the rule relating to market access will take at least two years from the formal implementation of the decision to leave the EU. So, any changes in relation to how we will deal with our UK customers is beyond our planning cycle.

As a business we have plenty of time to ensure our trading relationships are appropriately structured for that new business environment.

Our immediate concern relates to our competitiveness, and the impact of a dramatic weakening of sterling. There has already been a significant shift in the currency rate. Immediately following the outcome of the vote, the pound weakened to its lowest level in almost 20 years.

This has a real implication for our competitiveness, both in the UK market and here at home in our domestic market. Our ability to offer a competitive price to retailers and consumers is reduced.

Weakening

We are, however, aware that the most dramatic immediate fall in sterling’s value is highly unlikely to become the long-term level; while the British currency will certainly be weaker as a direct result of this vote the extent of weakening may not be as extreme as some have suggested.

As a food manufacturing business based in Ireland we have identified a number of potential mitigating actions that will reduce the negative impact of this immediate loss of competitiveness.

We are very fortunate that we have invested heavily in highly efficient biscuit baking, chocolate enrobing and automatic packing equipment. Our cost structures will allow us to compete against older and less efficient biscuit factories. Our focus is on ensuring we maximise the benefits provided by this investment – we we take full advantage of our technical strengths.

For our business, while we are committed to local sourcing whenever possible, some of the most expensive ingredient inputs such as chocolate and sugar are imported. We will now source more of those inputs from sterling-based suppliers. We estimate that about 50 per cent of the negative impact of any euro/pound rate change can be offset by good planning of the purchasing of these key input costs, without diluting our local sourcing commitment.

We will redouble our efforts to ensure our offering to UK retailers and consumers is as strong as it can be. We need to ensure that our relevance to our UK customers is optimised, and we are confident that we can provide sustainably produced, innovative products that differentiates us from our UK-based competitors. Our investment in those aspects of our new business will now be increased.

Finally, we have an immediate concern about the risks of cheaper British biscuit imports into our domestic market. Every week more than €3 million of biscuits are purchased and consumed in Ireland. Prior to the launch of East Coast Bakehouse, 99 per cent of those biscuits, both branded and retailer private label, were imported, mostly from the UK. A sustained significant weakening of the pound will result in cheaper imported biscuits.

For our business, and all local food producers, this will be testing time. We will, more than ever, depend upon the support of our leading retail customers and our Irish consumers.

This is an opportunity to provide real and practical evidence that retailers and consumers really do "Love Irish Food", and that support for local food is more than just lip service. Michael Carey is co-founder and managing director of East Coast Bakehouse. @careyonfood. The views expressed are personal