{"id":23568,"date":"2017-11-15T14:53:33","date_gmt":"2017-11-15T19:53:33","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/to-go-or-not-tesco-brexits-potential-impact-on-the-uk-food-industry\/"},"modified":"2017-11-15T17:42:49","modified_gmt":"2017-11-15T22:42:49","slug":"to-go-or-not-tesco-brexits-potential-impact-on-the-uk-food-industry","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/to-go-or-not-tesco-brexits-potential-impact-on-the-uk-food-industry\/","title":{"rendered":"To go or not Tesco? Brexit\u2019s Potential Impact on the UK Food Industry."},"content":{"rendered":"

The rise of isolationist political movements around the world has created significant uncertainty for many companies with global supply chains. One isolationist scenario already playing on the global stage is Britain’s exit from the European Union. Understanding how Brexit will impact supply chains in Britain and Europe can help companies worldwide understand how isolationist policies may change the business landscape. Although the United Kingdom\u2019s exit terms from the European Union have yet to be defined, the impact of Brexit is already being felt across many industries. Analysts forecast that the supply chain disruptions caused by Brexit could reduce the profitability of some industries by up to 30%.[1]<\/a><\/p>\n

Brexit & Tesco<\/strong><\/p>\n

Tesco, the British grocery chain, is facing significant challenges as a result of the isolationist policies associated with Brexit. According to a marketing intelligence firm, consumers identify Tesco as the brand most associated with Brexit.[2]<\/a> Tesco\u2019s notoriety and association with Brexit comes after the grocery store refused to pay the higher prices for Heineken or Marmite products that manufacturers demanded and blamed on Brexit.[3]<\/a>. The isolationist megatrend should concern Tesco\u2019s management because almost half of the food consumed in Britain is imported.[4]<\/a> The supply chain for the British food industry is particularly vulnerable to uncertainties caused by Brexit. Any increase in tariffs or customs wait times will add significant stress and real costs of importing groceries. UK food experts warn that the disruptions in the supply chain could disrupt food availability at a level \u201cunprecedented for an advanced economy outside of wartime.\u201d[5]<\/a> While a range of Brexit scenarios have been identified, the \u2018hard Brexit\u2019 scenario doesn\u2019t preserve any of the European Union member trade policies. In this scenario, food retailer profits would decline significantly as a result of higher tariffs, procurement bottlenecks and a decline in the relative value of the British pound. This scenario could cost food retailers 23% of profits, dropping \u00a36 billion to \u00a320 billion.[6]<\/a><\/p>\n

Source:<\/em>\u00a0Sam Chambers, “Brexit Retail Mess: You Can’t Move Supermarkets to Frankfurt,” October 30, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-30\/brexit-s-retail-mess-you-can-t-move-a-supermarket-to-frankfurt, accessed November 2017.<\/p>\n

 <\/p>\n

What steps should Tesco take?<\/strong><\/p>\n

In the short term, Tesco needs to prepare for the worst Brexit scenario. One immediate action they need to take is to develop new domestic supplier relations to locally source products that are at-risk for the highest post-Brexit tariffs. Because of the long lead times in setting up these relationships, Tesco will need to establish these partnerships before a potentially hard Brexit deal is reached.[7]<\/a> Tesco will also need to maintain higher inventory levels to offset the risk of inevitable delays caused at ports by more onerous customs regulations. The UK receives over 700,000 inbound shipments per day that would face additional border checks in a post-Brexit scenario. Any increase in clearing times for these shipments will create substantial bottlenecks at UK ports and create substantial problems for Tesco\u2019s inventory management.[8]<\/a> In the medium term, Tesco will need to adapt to whatever Brexit scenario ultimately becomes reality. They will need to adapt quickly and effectively to survive in a post-Brexit UK.<\/p>\n

In addition to taking steps to protect its supply chain from the risks of Brexit, Tesco should leverage its scale to try to partner with the British government to create the best possible regulatory environment for British food retailers. These efforts should take two forms. First, Tesco should partner with other food retailers to ensure that Brexit negotiators are very aware of some of the very real risks a hard Brexit poses for both the British food industry and the British population. Tesco\u2019s CEO Dave Lewis is already taking some positive steps in this direction. He outlined that \u201cin a no deal scenario, if there were to be tariffs, then actually that could impact the price of food. That\u2019s clear, everybody knows that, we\u2019ve been very clear and we\u2019ve shared with the civil service and policymakers how that actually works.\u201d[9]<\/a> They also need to work with the government to develop more efficient infrastructure for imports and customs into the UK. Although the UK has floated plans to develop computerized systems to optimize the current customs process for business imports, the plan is vague and Tesco needs to partner with the government to develop an effective logistics program.[10]<\/a><\/p>\n

What does the future hold for Tesco and the British food industry?<\/strong><\/p>\n

One open question related to Tesco\u2019s upcoming supply chain challenges with Brexit is how aggressively Tesco should hedge against the risk of Brexit. Should Tesco make large-scale investments now to protect against potential Brexit scenarios? Another open question is what the long term implications of Brexit will mean for the dynamics of the British food industry? Is Tesco set up to stay the most competitive in whatever post-Brexit scenario becomes reality?<\/p>\n

\"Is<\/p>\n

Source: <\/em>Bain Insights, “How Will Brexit Affect Your Supply Chain?,” Forbes.com, March 30, 2017, https:\/\/www.forbes.com\/sites\/baininsights\/2017\/03\/30\/how-will-brexit-affect-your-supply-chain-infographic\/#628f227d7e11, accessed November 2017.<\/p>\n

 <\/p>\n

Word Count: 764<\/p>\n

 <\/p>\n

 <\/p>\n

[1] Bain Insights, “How Will Brexit Affect Your Supply Chain?,” Forbes.com, March 30, 2017, https:\/\/www.forbes.com\/sites\/baininsights\/2017\/03\/30\/how-will-brexit-affect-your-supply-chain-infographic\/#628f227d7e11, accessed November 2017.
\n[2] Ben Bold, Tesco brand ‘most associated with Brexit’,” campaignlive.co.uk, March 29, 2017, https:\/\/www.campaignlive.co.uk\/article\/tesco-brand-most-associated-brexit\/1429028, accessed November 2017.
\n[3] Rob Davies, “Tesco pulls Sol, Amstel and Tiger from shelves in Brexit price row,” March 29, 2017, https:\/\/www.theguardian.com\/business\/2017\/mar\/22\/tesco-sol-amstel-tiger-brexit-heineken-price-increases, accessed November 2017.
\n[4]\u00a0Sam Chambers, “Brexit Retail Mess: You Can’t Move Supermarkets to Frankfurt,” October 30, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-30\/brexit-s-retail-mess-you-can-t-move-a-supermarket-to-frankfurt, accessed November 2017.
\n[5]\u00a0Oscar Williams-Grut, “Brexit could cause food disruption ‘unprecedented for an advanced economy outside of wartime’,” BusinessInsider.com, July 17, 2017,\u00a0 http:\/\/www.businessinsider.com\/brexit-uk-food-supply-eu-report-sleepwalking-crisis-2017-7?r=UK&IR=T, accessed November 2017.
\n[6] Thomas Kwasniok, Peter Guarraia, Michael Gastka, “Is Your Supply Chain Ready for Brexit?,” Bain.com, February 6, 2017, http:\/\/www.bain.com\/publications\/articles\/is-your-supply-chain-ready-for-brexit.aspx, accessed November 2017. href=”https:\/\/www.forbes.com\/sites\/baininsights\/2017\/03\/30\/how-will-brexit-affect-your-supply-chain-infographic\/#628f227d7e11″>
\n<\/a>[7] Sam Chambers, “Brexit Retail Mess: You Can’t Move Supermarkets to Frankfurt,” October 30, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-30\/brexit-s-retail-mess-you-can-t-move-a-supermarket-to-frankfurt, accessed November 2017.
\n<\/a>[8] Ibid.\u00a0
\n<\/a>[9] Oscar Williams-Grut, “Tesco CEO: Ex-Sainsbury boss is wrong on Brexit – but ‘no deal’ could push up food prices,” October 5, 2017, http:\/\/www.businessinsider.com\/tesco-ceo-dave-lewis-brexit-supermarkets-food-prices-2017-10, accessed November 2017.
\n<\/a>[10]\u00a0Sam Chambers, “Brexit Retail Mess: You Can’t Move Supermarkets to Frankfurt,” October 30, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-30\/brexit-s-retail-mess-you-can-t-move-a-supermarket-to-frankfurt, accessed November 2017.
\n<\/a>[11]\u00a0Bain Insights, “How Will Brexit Affect Your Supply Chain?,” Forbes.com, March 30, 2017, https:\/\/www.forbes.com\/sites\/baininsights\/2017\/03\/30\/how-will-brexit-affect-your-supply-chain-infographic\/#628f227d7e11, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

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