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‘No-deal’ Brexit could cost food retailers and their supply chain £9.3bn, says Barclays

With grocery margins typically around 3-5%, additional costs will likely be passed on to consumers, Barclays says.

Failing to reach a Brexit deal could cost UK food retailers and their supply chain £9.3bn (US$12.2bn), according to a report by Barclays Corporate Banking.

The new report, Scale, Disruption and Brexit – a new dawn for UK food supply chains?, shows that a no-deal Brexit would create an average tariff of 27% for food and drink supply chains. 

With grocery margins typically around 3-5%, additional costs will likely be passed on to consumers, Barclays says.

“The food and drink industry is one of the country’s most important sectors, employing millions of people across the UK,” comments Ian Gilmartin, Head of Retail at Barclays Corporate Banking.

“For the good of both UK business and consumers, the potential impact on our producers and grocery retailers should be front and centre of Brexit negotiations.

“Some products would avoid tariffs, even in a no-deal scenario, but for most goods the effect of an increased tariff burden would be extremely damaging, and cheaper goods would be the hardest hit.

“71% of our imported food and drink comes from the EU, and 60% of our exports go to the EU. A positive agreement on trade is essential if we are to protect UK exporters and avoid significant price rises for UK consumers.”

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A no-Brexit would deal would result in varying tariffs for different product types. For instance, Barclays reports that fully processed food and drink products, like orange juice, will attract the highest tariff of 31%.

Semi-processed food and drink like white sugar will have a 29.5% tariff meanwhile primary products and raw materials like bananas will have a 9.7% tariff.

Beyond these surcharges, some produce will also attract  ‘specific duties’, with Barclays noting that this will disproportionately impact products like meat, cereal, olive oil and wine.

As Brexit negotiations press ahead, other consumer trends are also providing challenges and opportunities for the sector.

Whilst shoppers are visiting stores more often — trips rose 14.3% from 2013 to 2018 — they are buying fewer products per visit with average spend slumping 8.5% during the same period.

At the same time, more and more consumers are turning to discount supermarkets like Aldi and Lidl, leading the ‘Big Four’ to see a 10% decline in market share since 2011.

Therefore, Barclays notes that the Brexit negotiations could “add an extra layer of uncertainty.”

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