March 4, 2016

Brexit, Boris and British retailers

BackBoris2012 Campaign Team (photo: Flickr_6996023785_aaa16363b8_k)
Voice of England: Boris Johnson, Lord Mayor of London, is now with the Out team
What on earth do those quirky island people want this time? The question would broadly sum up the rather puzzled reaction of most Germans to the UK's June 23 referendum on continued EU membership.

Their puzzlement surely knows no bounds now that the generally diffuse Brexit camp has found the figurehead it so desperately needed in Boris Johnson, the immensely entertaining Lord Mayor of London. Here one is tempted to quote Frederick the Great on William Pitt the Elder: "England has long been in labour, but at last she has brought forth a man."*

The Brits wouldn't be Brits, however, if the "Out" campaigners hadn't chosen someone quintessentially eccentric to lead them. Johnson, with a charismatic personality and an offbeat sense of humour, sports a variety of unkempt hairstyles that make even Donald Trump look tame.

Given that virtually the entire British Establishment are for continuing the delights of Brussels bureaucracy, it is unlikely that this modern-day successor to Dick Whittington will be able to make a change.

This said, there has always been a strong groundswell of public opinion against membership since premier Ted Heath marched the country into Europe 43 years ago without consulting the British people.

In the event that Boris & Co make a Brexit despite the odds, what would be the likely effect on UK and European retailers and their suppliers? And how do their German counterparts view the strange wish of the British people to determine their own destiny?

Sitting on the fence – nervously

None of the relevant UK trade bodies openly support the out campaign. The British Retail Consortium (BRC) wants to stay strictly neutral ("We will not be advocating for one side of the campaign or the other"), while The Food and Drink Federation (FDF) states that it does not have a corporate policy on the referendum.

The Confederation of British Industry (CBI), however, fears the "impact on business and consumer confidence, as well as investment and financial markets during a period of renegotiation, which would likely hit growth in the medium term. Under Brexit, the reintroduction of tariffs and other trade barriers could increase prices of goods on supermarket shelves."

Joanne Denney-Finch, chief executive at the Institute of Grocery Distribution (IGD) also points out that "a great deal of UK law is entrenched in EU law, which will take a long while to unpick. We don't just face a year of uncertainty – it will last for longer than that."

Brit with bowler holding EU and UK flags (photo: Shockfactor.de_Fotolia_102757065_M)
Bowler hats: Dear Europe, Please don't forget we also gave you "The Avengers"
These fears are echoed by many captains of industry, including Sir Martin Sorrell, founder & CEO of advertising giant WPP: "Britain will be economically and politically stronger in than out. Jobs, investment, trade and security will benefit. Clearly the EU can improve its structure and bureaucracy, but that's better off done inside the tent. Leaving means jumping into a black hole."

Most of the UK's leading retailers strike a cautious tone. These include Tesco Chairman John Allan: "We are studiously neutral because we have over 10m customers a week and they will all form their own view. Equally, as the UK's largest private sector employer we have around a third of a million staff who are fully entitled to form their own views on the pros and cons."

A spokesperson at rival Sainsbury's says: "We are an a-political business and think it's up to the British people to decide on matters such as this."

Marks & Spencer makes a similarly anodyne statement: "We believe that this is a decision for the people of Britain to make. Like every other business, we will continue to evaluate the issue with a focus on the economic consequences."


Others, such as Stefano Pessina, CEO at Walgreens Boots Alliance, have spoken out publicly in favour of the "vote to remain", but stress that this was only "in a personal capacity". Kingfisher goes one step further as one of 200 companies who have signed a letter to The Times in support of the UK staying in the EU.

Where angels fear to tread

Few, however, have leaned quite so far out of the window as Asda President & CEO, Andy Clarke: "As the country faces one of the most important decisions in its history, I felt that it was right to make our position as a company clear – Britain should remain within the EU."


"Complexity and uncertainty are bad for business. I believe that a single market is less complex than negotiating new trade deals with Europe and that leaving the EU would take Britain into the unknown at a delicate time for the global and domestic economy."

This may please Clarke's masters in the US, who would doubtlessly prefer to see one single market from the Atlantic to Anatolia, but nailing one's colours to the mast in this way may mean having to walk the plank later. English retailers who endorsed the remain campaign during September's referendum on Scottish independence are still being boycotted by militant consumers north of the border.

Compare this with streetwise Aldi: "We agree with the Government's decision to put the UK's membership of the EU to referendum as we believe this is an issue that should be decided by the public. Aldi UK is very much a British company and while our parent company is pan-European, Aldi UK will respect any decision made as part of the proposed EU referendum."

Double decker bus (photo: Delphotostock Fotolia_38220436_M)
Will the UK miss the bus?
This is clever stuff coming from a company with a low-cost model which profits immensely from European standardisation. It is doubly clever coming from a German discounter who wants to be seen as a British company by local consumers. Note also how Aldi calls its parent organisation in Mülheim "pan-European" rather than German.

Fellow German discounter Lidl was happy to play for safety with a more technocratic answer: "Of course we are preparing for every possible scenario which could affect our business so that we can guarantee the undisturbed continuance of all our operations."

As might be expected, the analyst community in the City of London is particularly interested in how Brexit would affect currency rates and inflation. Many bankers fear a currency fall which Goldman Sachs thinks could be as large as 20 per cent.

"The UK is highly reliant on food imports, but most companies are currently indifferent to the foreign exchange and other impacts a UK exit could have," warns Mike Dennis, managing director for Food & General Retail at Cantor Fitzgerald Europe.

Bruno Monteyne, senior analyst for European Food Retail at Bernstein, is less worried: "I see limited impact on Continental retailers such as Ahold, Carrefour, Metro, Casino, but UK retailers will benefit."

"Brexit would likely be combined with a drop in sterling, which would drive food inflation materially higher. As that food inflation is shared among all food retailers, it would immediately be passed on to consumers."

"Higher food inflation would drive higher sales and, contrary to some common wisdom, doesn't compress margins (look at the high inflation years from 2009 to 2011). That would drive material share price increases. So in some ways Tesco is your best Brexit hedge."

European retailers oppose Brexit

This doesn't cut any ice with European trade federations who are clearly against Brexit. Alisdair Gray, Director of European Affairs at the European DIY Retail Association (EDRA) says: "The European single market is one of the cornerstones which the retail sector relies upon to easily access products and customers within the EU."

Fish & chips (photo: Fabio Balbi Fotolia_78663331_M)
Fish & chips: Where would continental European cuisine be without such culinary delights?
"EDRA believes that without the long-standing approach taken by UK governments in breaking down barriers to trade within the EU, retailers and customers throughout Europe would be penalised. The UK has also led the way in pushing for more open trade with the rest of the world, and all parts of the European economy have benefited greatly from that."

Stefan Genth, CEO of German retail federation HDE, agrees: "Brexit would be a fatal signal for the successful single market model. Great Britain is one of the most important trading partners."

Nearly all German retailers, however, are reticent on the subject. Only Metro Group makes its position clear: "The UK is an important member of the EU which regularly fights for a competitive Europe that creates growth and jobs…We therefore hope that Britain's citizens vote to stay in."


Philipe Gruyters, managing director of European buying group EMD, is also no Brexit fan. "It would lead to trade barriers between the (remaining) EU and the UK, which could hinder cooperation in European sourcing."

Suppliers oppose Brexit

Many international brand manufacturers such as Unilever refused to comment or merely confirmed, as with Coca-Cola, that they have no public position on the issue. A few, however, such as Danish dairy company Arla Foods, 80 per cent of whose global revenues are generated in seven EU countries including the UK, answered in detail.

"To utilise our milk pool of more than 13bn kg of milk in the most optimal way, it's important that milk and dairy products can move freely across geographies. Therefore, a well-functioning and strong EU with free movement of goods and services is critical for the success of our business." 


"The most significant area in which a Brexit would hurt us is the impact such a scenario would have on the Pound. A weaker British currency would affect us negatively."

Alan Clark, chief executive of SABMiller, also wants the UK to stay: "We believe that Britain is stronger in the EU. As a multinational brewer, with operations across the EU, we value the free movement of our beers across the continent."

Red telephone box (photo: David Franklin Fotolia_81202177_M)
Hello, this is London calling...
"The fact that our employees can easily move and work in different European countries, including the UK, helps our business to grow and provides for better career development within the company."

"As a global business headquartered in the UK, SABMiller benefits from the trade deals and agreements, which the EU has negotiated with countries around the world, and from the support of a stable business environment and stronger rule of law."

"The UK's membership of the EU supports British growth, jobs and prosperity, and we believe that the country's and SABMiller's economic and business interests are therefore best served by remaining in the Union."

SMEs and exporters unhappy too

But it is not just the big guys who want to stay in. One very much smaller, but experienced exporter of British foods to world markets says: "The EU has proven a useful market over the last 20 years, and the addition of Eastern European countries in 2004 has facilitated not only additional business but greater cultural understanding too – no need for war!"

"The EU has enabled an engagement between business with a number of schemes. I am not convinced that a solely British approach to international trade under Brexit will necessarily deliver imaginative and community-led opportunities in times of austerity."

"We have not lost our British identity within the EU, and we are in the 21st century, a time of global connections. We need to break down barriers not create new ones."
 
umbrella (photo: jc_studio Fotolia_78676070)
The great British climate: Lovely weather for ducks
"What I fear most is the English vote to leave the EU taking everyone else with them – not so much a British Exit as an English Exit. The Scots would immediately seek a new independence referendum and leave the UK. Demographics would perhaps quickly lead to Northern Ireland joining the Republic. Wales would not be impressed."

"The Little Englanders would be left to quizzically view a foreshortened horizon – glumly I would suspect."

Little Englanders or no, however, all ex-pats here in Germany must now run the gauntlet of local irritation and puzzlement as to Brexit until at least June 23.

Already a surprising number of German acquaintances in Frankfurt have demanded to know "why you Brits aren't more thankful"? Presumably they expect a due sense of gratitude from all those who have the privilege of being net contributors to the EU...


* "Il faut avouer que l'Angleterre a été longtemps en travail, et qu'elle a beaucoup soufferte pour produire Mr. Pitt, mais à la fin elle est accouché d'un homme."


Related article in German: By Mike Dawson on page 8 of Lebensmittel Zeitung, no. 8, 26.02.2016


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Comments for this article are closed.

  1. Audrey Brown
    Created 5 March, 2016 16:13 | Permanent link

    Brexit

    How refreshing to read an unbiased report on the Brexit campaign. The humour of Boris Johnson disguises his brilliant brain, and Brexit supporters appreciate how fortunate they are to have him as their leader.

    The British people resent the scaremongering of David Cameron and his MPs and even more so the interference of the USA and other members of the EU. The interests of the British people are all that should concern us whilst making up our own mind on what we prefer.

    Like many of my compatriots, I have never felt European as we are most definitely not part of Europe either physically (other than the blasted tunnel!) or mentally. Europe is a complete basket case in my opinion, and I hate being part of it.

    I believe the EU are desperate to keep us in because they take from us far more than we receive and, if and when we exit, I believe the EU will fall apart.

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