Brexit and Hospitality
While life post Brexit is as unpredictable today as it was at the time of the referendum in June 2016, Jeremy Robinson, Partner, Watson Farley & Williams urges operators to consider how the potential changes could affect their business and plan accordingly.
For some, dealing with the EU has never been easy, but at least you knew what you were getting. Similarly, catering for the out-of-home market in the UK may not always have been the easiest trade, but at least after 44 years of EU membership, you knew how the EU food system worked.
Today, if you were to take a blank piece of paper and design an EU food system from scratch – including what rules to put in place, how to ensure sustainable supply chains, subsidies to producers, quality standards and more – you may well design something very different from the EU food system operating right now.
Since we became members of the EU, the UK’s food industry has been constantly changing as a consequence. Now, we grow less of our own food and import more from the EU. Of the food that is grown on this island, much is harvested by EU migrants. As the UK is leaving the EU – or so it appears today, nothing can be certain – the industry will have to make many changes again. The question is how to adapt.
Shortly before Christmas 2017, the EU (Withdrawal) Bill – that was originally heralded as the Great Repeal Bill – endured a bruising Committee stage in the House of Commons. The Government was defeated when it opposed an amendment guaranteeing parliamentary approval of the terms of the UK’s withdrawal.
Moreover, at the same time, Theresa May had faced multiple challenging weeks as cabinet ministers had resigned (for various reasons), and the Brexit debate had continued to polarise politics as never before. At the time of writing in mid-January, while Phase 2 of the UK-EU negotiations are set to begin shortly, the three Phase 1 threshold issues – comprising the financial settlement to the EU; Northern Ireland and the EU; and UK citizens’ rights – have not been fully resolved.
In addition, parliamentary opposition to Brexit has become increasingly vocal. Since the June 2017 election, the notion of reversing Brexit – which had been unthinkable in political circles in the wake of the Referendum – has become thinkable again (even if highly unlikely).
Planning for a hard Brexit
While nobody can predict what the ultimate Brexit outcome will be, I propose we plan for a ‘hard’ Brexit with transition period. With this in mind, it is advisable to consider the following:
- Get fit for Brexit
Now is the time to assess how your business will respond to the main challenges, and how much it will cost you: sourcing food, finding staff and attracting footfall.
- Plan for the worst, then work around it
Do you rely heavily on recruiting and retaining staff from EU Member States? Will you be able to find enough trained people locally? Can you innovate/automate to operate with fewer staff, but just as effectively? Where does your food come from? If tariffs are imposed on food imports, can you source elsewhere at lower cost? Or even different products? How much will quality suffer? Will customers support higher prices? Will footfall suffer? How will you get people through the door?
- Keep up to date
There is a long way to go before you can answer all these questions confidently. UK politics, EU politics, the economy and public sentiment may appear to be heading in clearly identifiable directions with the UK – despite increasing controversy – heading towards the Brexit door; the EU maintaining a united and quite inflexible negotiating stance; the UK economy suffering, or at least not growing as well as the rest of the EU; and public sentiment remaining clearly divided, but all this could change at any time. It would be unwise for you to make irreversible decisions on the direction of your business until as late as possible. Use this time of uncertainty to plan so you can profit, regardless of the circumstances, and keep those plans nimble. Be ready to change tack as the wind moves.
Since the Referendum on 23 June 2016, the UK’s domestic politics has seen enormous change against a background of growing economic pessimism. It is up to you to get your business in good shape to enable it to adapt to the changes that will come. Plan for the worst, and keep your eye open both for developments and the opportunities these may bring. Who knows what may be around the corner?
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.