Brexit has prompted me to have a good think about how the sector I know and love will change in the coming months. I’ve focused on food service here but much of the following content applies across the wider industry.

So what does Brexit mean for this sector? Although this is a time of uncertainty with huge macro decisions that still need to be made, it’s worth trying to think ahead. I’ve tried to break this into a few key areas below.

Inflation and recession mean less frequent treats

Reduced sales, rising costs and uncertainty. A recessionary climate may slow growth in the sector, but it may not be bad news across the board.

We could see the frequency of higher-end dining being squeezed, as upward inflationary pressure from the rising cost of imports reduces household disposable income. Indicatively, “families..now face a 3% hike at supermarket checkouts”. General fear and uncertainty of what’s to come will further compound a downturn sales spending.

However, in previous downturns, fast casual dining has continued to grow. Lunchtime grab-and-go stalwarts (Pret, Itsu, Leon, Tossed, etc.) have historically grown fast in tough trading conditions. We can also count on the ‘birthdays and celebrations’ market and we may see diners trading-down from higher-end options to more keenly priced alternatives (Wahaca, Burger & Lobster, Pizza Express, Cote, Cafe Rouge etc.) as well as opting for the ever expanding ‘pubs with food’ market.

A reported upturn in ‘staycations’ (driven by more expensive European holiday prices) could help to smooth the trend, and this could combine with US and EU holidaymakers taking advantage of cheaper prices due to better exchange rates.

Expect raw ingredients to rise by 2%

Sterling has depreciated 3% against the euro since Friday and 10% against the dollar. “The British import a quarter of their food from the EU, and that’s a problem”. A rule of thumb in restaurants is a 10% profit margin. So, although raw ingredient prices should not spiral in the short term, a 1–2% rise is still significant.

Longer term, the effect on prices and availability of produce largely depends on what ‘Leave’ actually means. If the UK leaves both the EU and the EEA we will see a significant effect on food supply. The UK would be forced to negotiate trade agreements and specify tariffs with each trading country independently to protect the cost of imported goods. Crucially, if the UK remains in the EEA, we would by definition be allowed to trade freely in the ‘four freedoms’ (labour, goods, capital and services). Politically, this may be at odds with a Leave campaign heavily leveraged towards the control of labour.

Labour availability depends on the longer term plan

A Leave campaign built on controlling immigration should by its nature have a big effect on this key area. Around 26% of UK hospitality workers are migrants versus the UK average of 16.7%. Much will again depend on the short and long term.

In the short term, we should see no dramatic effect until Article 50 is enacted — if it ever is! It is worth noting that socially, a worrying increase in race-related crime may already be challenging the idea of the UK as an attractive place for immigrants to work. In addition, there is an economic pressure from the relative price of sterling, since those workers who traditionally came to the UK for a short time to earn relatively higher salaries here, may not be incentivised as strongly. However, I presume most workers already here will be waiting to see how the post Brexit plan unfolds before changing their plans.

The longer term is dependent on the position post Article 50. In a nutshell, if we seek to strongly control the borders (e.g. points based system), we would expect to see a reduction in available casual labour within the sector. Since permits are usually only given to people with specialist skills or qualifications, this one factor has the potential to make or break a sector. Young, low-skilled immigrant workers would struggle to secure work permits under a points based scheme. The waiters, bar staff and hotel cleaners would be a rare resource. This would drive up labour cost significantly. I can only see this limiting the number of mid to low range restaurants able to survive. It would be this area that could devastate an industry.

Food and drink is a narrow margin business

Operators buy raw products, do something to them, then sell the results to hungry customers. This requires staff, raw products and of course a place to make it all happen. A threat to the money in customers’ pockets or those base requirements has a real and direct impact on the sector. Profit margins are small and businesses struggle to survive, even in the good times.

In the face of uncertainty and with rocky times ahead, firms should be looking at how they can strengthen their operations. Technology is one of the key ways to streamline in a recessionary climate.

Systems that offer effective procurement, tight wastage control, minute-by-minute rota tools and portion control have all done well in previous recessions, but many firms now have these in place.

But there are further savings to be had in operations and back office management.

Operational efficiency delivers more with the team you have

Strategically, operators must be prepared for a way to get more from the staff they have. Efficiency in operational processes, training and effective management of teams is going to be key. I am (of course) sure we’re part of the answer. Trail streamlines processes, and increases sales to customers through reducing admin. We improve the way operations run when they’re under pressure and therefore have a fundamental role to play in helping secure a strong future for the sector.

Please get in touch to talk through any of the points above and to find out how we can help in these tough times.

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