BRC boss Helen Dickinson talks Brexit
Helen Dickinson: "We mustn't underestimate our interdependence with the rest of Europe"
With the publication of studies, including 'New Tariffs Mean Higher Food Prices' and a 'Customs Roadmap', London-based BRC has provided particularly valuable information material at a time when the UK government seems incapable of developing a coherent negotiating position for the country's food & beverage industry.
A lot is at stake. In the event of a hard Brexit after March 29, 2019, many consumer basket prices would be on a cliff edge and we could be facing bare shelves. BRC Chief Executive Helen Dickinson, OBE, responds...
"One can't just sweep away
whole supply chains"
The successful outcome of Theresa May's meeting with the Council of Ministers last Friday has reduced the risk of a no-deal. But the focus of the BRC remains on informing and influencing the Government as they continue the negotiations, in order to secure the best deal for consumers before March 2019.
No one really knows whether the UK is going to experience a hard or soft Brexit. Dixons Carphone CEO Seb James believes that there will be an 11th-hour transitional agreement. If you were forced to hazard a guess, will it be Canada or Norway?
I really think that this must be left to the negotiators, but we have now at least traversed the standstill of Phase One, and I sincerely hope that we are on a trajectory towards transition status.
Would it really be so bad, if no agreement was reached?
If the UK leaves the EU with no trade agreement, EU imports will be subject to new tariffs under World Trade Organisation Most Favoured Nation (WTO FN) tariff rates. The weighted average tariff of all food imported by retailers from the EU would be 22 per cent, with some tariffs as high as 44 per cent for cheese and 40 per cent for beef.
Commenting on your report, New Tariffs Mean Higher Food Prices, your Director of Food & Sustainability, Andrew Opie, claimed that consumer basket prices would be on a "cliff edge", if the UK government fails to secure a zero-tariff deal with the EU. Isn't this an overdramatisation?
Not at all. Nearly 80 per cent of the food UK retailers import comes from the EU, so it is more than clear that new tariffs will only put upward pressure on prices. Based on import and sales data gathered from BRC members and tariff rate data from the International Trade Centre, we calculate that, for instance, the price of beef would increase from 5 to 29 per cent; cheddar would increase by 6 to 32 per cent; tomatoes by 9 to 18 per cent; and broccoli from 5 to 10 per cent.
Why do your estimates have such large ranges?
Because they will depend on the varying degree to which domestic producers also put their prices. The lower estimate assumes domestic producers do not react and the higher assumes they react by putting up their prices to match the new tariffs. That said, domestic producers are likely to put up prices when tariffs are imposed on foreign-produced goods, in order to maximise profits.
As a result, for many products, the effect could be as if all goods foreign or domestically produced faced the tariff.
Why do you estimate price rises to be lower than the amount of expected tariff increase?
Predicting what would actually happen to prices after we leave the EU is more complicated than just considering the direct tariff impact. There are many factors which determine the prices of goods and these are changing all the time. Based on the tariff increases and using the current level of imports from the EU, we've estimated the potential range of price increases for a number of goods found in the UK's weekly shopping basket, if imports from the EU were to face WTO tariffs.
Tesco CEO Dave Lewis and JLP Chairman Sir Charlie Mayfield have said that they will "protect" British consumers from price rises. Can any retailer survive cost increases of this magnitude without passing them on to their customers?
Retailers will definitely do their best to absorb any cost increases, but by no stretch of the imagination will they be able to absorb all the potential increases. So the simple fact remains that under a scenario in which the UK ends up implementing WTO MFN tariffs, costs on some products, particularly for food, will go up substantially.
Won't this also mean higher prices for EU consumers?
Yes, but the effect of higher prices will be felt much more intensely in the UK because we import far more food from the EU than the other way around.
To what extent could the horror scenario you paint be alleviated by increasing home production and by free trade deals with non-EU countries?
These alternatives underestimate the complexities involved. Our supply chains will always be rooted here in the UK for good reason and there is no doubt retailers will be working with farmers and producers to source even more. But we mustn't underestimate our interdependence with the rest of Europe; not only for imports but for exports too, enabling farmers to make the most of their produce and deliver well regulated, efficient supply chains.
The rest of Europe also offers us products that we can't produce in the UK, such as citrus fruits, and it also supplements our seasonal production, which meets consumers' expectations for produce all year round.
Relations between retailers and suppliers can't be just turned on and off like a light switch, and one can't just sweep away whole supply chains.
What do you mean by "complexities"?
Currently there are 55m customs declarations each year on both sides of The Channel because all EU parties use the so-called Single Administrative Document (SAD). Without this instrument, we estimate that declarations would increase nearly five-fold to 255m. So the amount of time required to tackle the huge increase in paperwork could seriously delay processing.
Sainsbury CEO Mike Coupe has warned that laborious customs procedures would mean higher prices and lower quality. Isn't this an exaggeration?
A disorderly departure from the EU would clog trade routes. This is why our Customs Roadmap report warns that a hard Brexit could leave the UK with bare shelves. We compute that every day almost 700,000 inbound shipments would require border checks if the UK leaves the EU without a deal.
Officials at Dover warn that an extra two minutes to clear the 4m trucks through customs that cross our borders annually, would lead to 27-kilometer traffic jams at ports. This would inevitably impair, for instance, the quality of highly perishable goods along the chilled food chain.
Do you agree with Mike Coupe's recent statement that the UK is "probably through the worst" of a weaker pound fuelling food inflation? Does this tally with your own BRC Shop Prices Data?
After four years of falling food prices, we're teetering on the edge of inflation in overall shop prices and already seeing some inflation in food. This may sound innocuous, but price, which has always been the key determinant in the value of a product, has become all the more important today in a scenario where consumer end prices are rising more quickly than real wages.
However, foreign exchange is not the only driver of consumer prices. The largest one is competition between retailers themselves, which has helped shield consumers from the full impact of the devalutation of sterling
Over the last ten years, the Big Four UK retailers have invested a total of around £70bn, while their cumulative profits have fallen by around £5bn. Won't a further increase in competition lead to the destruction of the industry?
When the going gets tough, the tough get going. Retailers are highly resilient and have successfully overcome numerous crises in the past. Pressure keeps them mean and lean and also drives innovation. Retailing has always been a super-competitive environment to the advantage of the consumer, and successful retailers will always be the ones who meet the rapidly developing expectations of consumers.
So Amazon and Ocado will be the winners?
I didn't say that. There are few businesses in our industry which are now purely physical or digital: for instance, all of the major UK supermarkets have ecommerce platforms and Amazon purchased Whole Foods this year. So the divisions between channels are blurring and becoming more irrelevant with the march of omni-channel solutions.
Ultimately, most consumers don't care how they buy a product as long as they get what they want, when they want.
But doesn't the fact that online is constantly increasing mean that bricks & mortar retailers will eventually die?
No, but we're already seeing a trend of physical stores moving away from being purely functional and towards experiential commerce. Retailers will need to develop these areas because physical store space is often leased or depreciates on balance sheets over a considerable period of time and is therefore hard to dispose of quickly. Also business rates equate to high property taxes in the UK, which means that sales space must be highly productive.
Big Box stores on greenfield sites will be particularly affected because there is a clear trend towards inner-city convenience. The whole issue raises questions not only of economics but of social policy.
Tesco, Asda and others are experimenting with a number of projects, including sports clubs, beauty salons, community centres etc., to reassign floor sales space in their Big Box stores due to falling productivity. What would advise them to do?
Much excess space has already been reassigned towards leisure and gastronomy, so there is not much more slack that these functions can take up. The problem will therefore only increase, which will require new ideas in the longer term. Given, for instance, our generally ageing population, excess store space could be used as living areas for older people in the locality. We have therefore advised the government to think more urgently in this direction.
Will increasing price pressure increase concentration on the UK retail market?
The CMA has given a green light to Tesco's proposed takeover of Booker; The Coop will soon own Nisa; and P&H has also just filed for insolvency, so we are certainly seeing evidence of this at present. By concentrating on prices, however, you are neglecting the fact that more entrepreneurs are disrupting the retail industry than ever before.
So what will be the effect of these two factors?
I think that both these developments will stimulate collaboration, not just in national and European buying groups, as we have seen between Asda and EMD, but along the whole supply chain, including logistics, online fulfilment and the conquest of the so-called "last mile". I also believe that there will be more partnership within the circular economy, including increased cooperation on energy saving, recycling and tackling food waste.
How will the end of free labour movement from the EU affect UK retailers post-Brexit?
Retailers recognise that it will result in lower migration to the UK. They also recognise that the structural change of the industry is likely to result in fewer jobs in the future, but those remaining will be higher skilled roles. Going forward, striking the right balance between a domestic skills agenda and a demand-led migration system that complements the UK labour market will be critical.
But it is essential in the short to medium term that European workers can continue to work in the UK to fill both labour and skill shortages.
One last question regarding a lady at the head of the BRC: How do you see the overwhelming preponderance of men in the retail world, when the optimal balance between the sexes in top management should surely be fifty-fifty?
As the Taylor Report etc. has revealed, there is clearly an issue here. 80 per cent of shopping decisions are taken by women and more than half of the retail workforce is female. But there are only one in four female managers in senior retail management and less than 10 per cent in the C-suite.
We therefore see it as our role to identify the barriers impeding career promotion for women and to tackle the concrete issues. One of these is clearly a lack of work flexibility at senior levels. So we support the creation of more flexible career paths for women in order that they can work and raise families at the same time.
One also has to change corporate cultures in such a way that diversity in general, whether sex or race, is seen as something positive. This only makes good business sense because, as, for instance, Harvard University studies confirm, those businesses that embrace diversity actually perform better. Last but not least, we are an advocate of transparency because it casts a spotlight on such issues as the gender pay gap.
Read in German: "Aldi und Lidl profitieren noch nicht vom Brexit" by Mike Dawson on page 8 of Lebensmittel Zeitung, no. 51, 22.12.2017. Interested readers are also referred to the relevant online information material provided by the BRC.