Dealing with Brexit

Brexit means Brexit. That much is now clear. If only we knew what Brexit meant.

Whatever your stance, there can be no doubt that the drinks industry is going to face a number of hurdles in the coming months and years related to exiting the EU, some of which are already apparent, while others will depend on the nature of our unnegotiated trade deal with our biggest trading partners.

There will be particular challenges for independent merchants across the country, especially those small-to-medium-sized businesses that have disproportionately benefitted from the low administrative burden of EU membership. Now a triple threat of unfavourable exchange rates, uncertain trade regulations and cashflow challenges loom across the sector.

Poor exchange rates will continue to constrain what merchants can do in terms of taking risks in their listings and growing margin, while we all learn to live with price points that have risen uncomfortably across the board. Rising rents and unfavourable business rates only make the matter worse, and with 2019 clocking as the worst year for retail sales since 1995, the temptation will be to play things safely.

This will have a direct effect on the variety and creativity of ranges. Merchants who import stock directly will have to prepare to confront longer lead times and additional paperwork, not to mention the potential of significant tariffs forming part of any new trade deal, disrupting existing relationships and making medium and long-term planning more important than ever. Many will reassess the viability of importing directly and instead rely on larger agents and distributors, in the hope they will be better able to absorb the shock of change. Buying decisions will increasingly have to be made on commercial realities, rather than personal conviction. This sounds like something that should already be happening, but there are plenty of independents who resist or restrict listings in categories such as Prosecco or New Zealand Sauvignon Blanc in order to make their selection personal and distinct from the multiples. 

As Brexit is implemented, smaller merchants will be pressured to buy what they know they can sell easily, rather than take risks. Buyers will need to exert considerable discipline and control over their stock in the days ahead. 

Cashflow, while a perennial problem, will become an even bigger issue. Aside from disciplining stockholdings, independents will need to be increasingly mindful of extending lines of credit, especially to other small businesses without strong trading histories and good reputations for payment. The fear of missing out on a sale in difficult trading conditions will tempt many to be generous with credit, at precisely the point when smaller, less well-run operators are most likely to default.

It is customary to finish such sombre pieces with heartwarming optimism. But the truth is that only the best independent merchants will continue to survive and thrive in the post-Brexit wine world. The good news is that the UK has some of the best independent merchants in the world. We will need to work diligently, intelligently and passionately to retain them, and have faith that their services will continue to be valued by customers in challenging times.

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