BREXIT

Brexit fallout: Snack sales face threat of drop in discretionary spend

Analysts warn Brexit may hit discretionary spend. Photo: iStock - Evgeny Gromov

Sweet and savory snacks will be among the hardest hit UK food categories as a result of the Brexit vote, according to analysts Euromonitor International.

As industry comes to terms with the outcome of yesterday’s referendum – when 52% of voters declared they want to leave the European Union – Euromonitor said volume sales in categories most reliant on discretionary income, including confectionery and ready meals, would feel the most impact.

The UK was the second largest consumer – after Belgium – of biscuits, snack bars, chocolate confectionery and crisps among the 28 EU countries last year, according to Euromonitor (see graph below).

Those categories that will be most affected will be the discretionary items,” said Sarah Boumphrey, Euromonitor global lead for economies and consumers. “Staples are not driven by changes in income to the same extent.

Fall in the value of sterling

Analysts Edison Investment Research said that, in the short-term, a fall in the value of sterling – which dropped to a three-decade low today - would bring a sharp rise in fuel pump prices that would divert spending from other areas.

That presumes the Remain campaign’s threats about the extent of the economic nuclear winter that would follow Brexit have been ignored and that consumers are still spending,” added Edison analyst David Stoddart.

It was a view echoed by Shore Capital analyst Clive Black, who said higher fuel prices would eat into discretionary spend if the pound remained weak against the dollar.

Thereafter it will take time, with imported seasonal food prices in dollars and euros likely to test the market,” he added. “The key question is whether or not it is passed through and what happens to the balance of prices, volumes, mix and margins.”

Uncertainty is key challenge

Many commentators believe uncertainty will be a key challenge in regard to Brexit.

This uncertainty will contribute to falls in business and consumer confidence as well as delays to investment decisions,” said Boumphrey.

She added that the outlook in the medium term would depend on the terms of the exit negotiations, which made it difficult to quantify economic impact or determine the regulations UK business would still need to adhere to.

Analysts have also warned that the impact on sterling could push up inflation and increase the price of imported food, particularly fresh produce.

Weak currency good for UK exporters

And while a weak currency is good news for UK exporters, it could hit businesses depending on where they are based.

Strategic and operational decisions will need to be made about where businesses locate their operations,” added Boumphrey. “I doubt we will see a wholesale removal of operations, but a rebalancing of where (geographically) business invests is likely.”

Meanwhile, flour milling trade body the National Association of British and Irish Flour Millers (Nabim) said it did not expect any immediate changes as a result of the Brexit vote.

Nabim will be working hard with members and UK government officials to establish the implications for the flour milling sector, our customers and suppliers – but we don’t expect any quick answers," said director general Alex Waugh.

Obviously there has been a strong adverse reaction in currency markets, which will inflate raw material costs if maintained, but other than that we don’t expect any immediate material change that will affect day-to-day business.”

'The great fear'

Edison Investment Research said a collapse in the value of sterling was “the great fear” following the vote to leave, adding that businesses will have covered against a short-term fall.

Edison said that whether foreign direct investment fell to a level where sterling was permanently reduced in value would depend on the policies the UK adopts.

Boumphrey said businesses were entering “uncharted territory.

Cautious approach to investments

The challenge is the length of the negotiations and this makes it very difficult to implement effective strategies. There is an uncertain future for the UK economy for the next two years at least and there are flow-on effects to Europe as a whole.

I think taking a cautious approach to investment decisions would be wise until the dust settles and we see the likely direction of the negotiations.”

She suggested companies exporting into the UK should avoid 'knee-jerk' reactions and take a calm and measured approach.

The UK will not be leaving the EU overnight,” she added. “Weighing up whether to pass on price rises to customers and end consumers is not a straight-forward choice.”

EU consumption of biscuits, snack bars, chocolate confectionery and crisps

Related News

The UK is leaving the European Union. It will take time for negotiations to take place, but what are the potential implications? And what does the dairy industry have to say? Photo: iStock-AlexLMX

Dairy reacts to Brexit vote

UK businesses may look to boost ties with the US. Photo: iStock

British food firms set to increase trade with US following Brexit vote

What does Brexit mean for the UK bread industry?

EU unzipped: How bread can cut it in post-Brexit Britain

Photo: iStock

Have your say: We want your views on the Brexit vote

Firms fear Brexit will push up ingredients costs: Pic © iStock/miriam-doerr

Brexit: 60% of firms fear UK leaving EU will push up ingredients costs

Unite is holding crunch talks with The Pizza Factory in Nottingham to avoid industrial action short of a strike by workers. Pic: ©iStock/Proformabooks

Brexit blamed for Pizza Factory job losses, says Unite

Brexit will have far-reaching effects on the British food industry, according to Liberal Democratic Nick Clegg. Pic:©iStock/mrdoomits

Have your cake and eat it: The Brexit effect on bakery and snacks

©iStock

Irish minister lays out seven-point plan for food and drink industry after Brexit

'The future for nutrition products within the UK market will depend a lot on how UK authorities like the MHRA and Department of Health respond in the coming months and years' ©iStock

Industry reaction: What #Brexit means for UK & EU nutrition sectors

UK exports of cereal and bakery goods rose to $3.2bn. Photo: iStock - claudiodivizia

The British are coming: Boom in UK exports of cereals and bakery goods

UK industry is hoping to increase wheat exports. Photo: iStock - pgaborphotos

Push to drive UK wheat exports as drought hits North African cereal crops

Photo: iStock

EU sugar sector must retain strategic importance after reform: report

Submit a comment

Your comment has been saved

Post a comment

Please note that any information that you supply is protected by our Privacy and Cookie Policy. Access to all documents and request for further information are available to all users at no costs, In order to provide you with this free service, William Reed Business Media SAS does share your information with companies that have content on this site. When you access a document or request further information from this site, your information maybe shared with the owners of that document or information.