Brexit and Foodservice
With last year delivering not only Brexit but also President Trump into the mix, we live in uncertain times. Jeremy Robinson, Partner, Watson Farley & Williams admits there are many unanswered questions as he provides a brief overview of what Brexit could mean to the Foodservice industry.
When the UK voted to leave the European Union, the commentary industry went into overdrive. The diversity of opinion and advice can be overwhelming when you really need clarity and simplicity to make good business decisions. With Donald Trump’s US presidential election victory, you may understandably feel clarity and simplicity have receded further. The global surge in populist politics and its possible electoral consequences makes understanding the global economy more urgent, yet more difficult.
Responding to Brexit
Brexit poses a fundamental question: how should you make business decisions amid uncertainty? Particularly when Brexit is not the only unsettling factor in hospitality: the currency fluctuates markedly from time to time; the perceived level of terrorist threat and security rise and fall; there are epidemics, economic crises and more. Where Brexit could be seen to be muddying the economic waters, many, understandably, see Trump’s victory as adding yet more grist to the mill of uncertainty. Ultimately, the question remains: what difference will these developments make to the demand for your services, and your ability to provide them?
The stakes are high: your industry is highly sensitive to changing demand. Uncertainty may cause businesses to take sub-optimal decisions by committing to a course of action before enough is known. Even without considering the Trump factor, uncertainty is already magnified because Brexit forecasting depends on multiple interacting parts including:
Timing of withdrawal
- Political difficulties of withdrawal negotiations
- Terms of any access to the EU Internal Market
- Troublesome politics within the EU and its Member States
- Freedom and ability to travel to the UK by air
- Nature of any deals with third countries
- Government economic policy in the years leading up to and following withdrawal.
Preparing for the worst
Assuming that Article 50 (the official legal means by which an EU Member State can notify its intention to leave the EU) is invoked in the Spring of 2017, what does the future deal with the EU look like? When will it emerge? In the meantime, how much will the economy be damaged (or prosper)? The shape of the deal and the UK Government’s negotiations may be influenced by what Parliament does in debate on invoking Article 50 and how far this binds the Government’s hands. Until then, all options are open between ‘hard’ and ‘soft’ Brexit. Possibly, no deal will be reached at all with the EU before the two-year deadline. Possibly, there will be no agreement to extend this two-year period. Businesses should therefore prepare for the worst: a ‘hard’ Brexit and no access to the Internal Market, some of the consequences of which may be significant.
Consequences of ‘hard’ Brexit
First, foodservice businesses may find it harder to attract and retain talent from elsewhere in the EU if the UK restricts the free movement of EU nationals into the UK. Even before Article 50 is invoked, some businesses report that it is already getting harder to find suitable staff because of the perception that the UK would no longer welcome overseas workers. Second, ‘hard’ Brexit also means the UK could fall outside the EU’s single aviation area, which allows EU air carriers to fly between any two points in the EU. Instead, connectivity with the UK would depend on bilateral traffic rights between the UK and the individual countries. If aviation connectivity declines as a result, travel to the UK by air may be affected, which in turn will affect the UK Foodservice industry.
Forewarned is forearmed
We must also consider possible upsides from Brexit, in particular through seeking to understand where you could operate more efficiently. For example, a tightening labour market should encourage businesses to seek to operate more efficiently with fewer, perhaps more highly paid staff. Brexit is also an opportunity to consider how bigger economic shifts, including more automation, will affect businesses. Foodservice operators should take the opportunity now to test the resilience of their businesses to economic shocks by taking a health check. Brexit need not mean the UK has become unwelcoming. However, if the Government does not provide certainty about the UK’s future arrangements with the EU any time soon, the impression that the UK is no longer welcoming may regrettably take hold Watson, Farley & Williams is an international law firm with offices in Athens, Bangkok, Dubai, Frankfurt, Hamburg, Hong Kong, London, Madrid, Milan, Munich, New York, Paris, Rome and Singapore.