11 Feb 2020
Just when will Brexit’s shadow on the food and retail sectors finally lift?
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No sector in Ireland is more vulnerable to a no-deal Brexit than food and retail. But that is not the only challenge facing the sector.
Brexit has cast a long shadow on Ireland’s food and retail sectors. Movement of top executives locally has been correspondingly quiet, though Irish companies have been more active in placing commercial directors outside these shores in the UK, France, Germany and Benelux.
Hiring decisions, particularly prominent C-suite roles, are based on confidence. Our assessment of the current market in this sector is not one of a loss of confidence, but of a watchful restraint.
The year began with deep fear of what may come politically and economically. But recent indications of the strong possibility of an agreement which avoids a no-deal Brexit has eased tension considerably.
Though the retail sector has slowed unnervingly, particularly in the UK, consumer goods have largely held their own.
Loyalty and trust intertwined with sustainability
Beyond Brexit, the acute awareness of climate change as an urgent agenda and the need for sustainability is pervading all sectors and businesses. It is particularly relevant in the food business.
PWC’s Irish Retail and Consumer Report 2019 reports that 41% of Irish consumers are prepared to pay a premium for sustainable products. People want cleaner, local food and care about all segments of the supply chain, including transport and packaging.
“Loyalty and trust are essential to the consumer experience. Socially, environmentally and locally conscious retailers and brands who can demonstrate responsibility and sustainability have a competitive advantage.”
“Companies need to be mindful of the growing ethical and ecological consciousness of their customers.”
The pressure is on outlets to switch a substantial percentage of products to ethically sourced, organic and locally produced options, offsetting the impact of threatened resources and carbon footprints.
Food sector meeting brunt of consumer expectation
Food businesses are at the cold face of consumer scrutiny on sustainability. Greenwashing will leave them ignored. FMCG retailers must clearly show a genuine, ongoing and strategic commitment to a reduction in carbon footprint, plastic waste and food waste.
Ireland’s Sustainable Development Goals, set up in response to the UN Sustainable Development Agenda with 2030 targets, provide useful guidelines which many retailers have already implemented, aiming to reduce their carbon footprint by 70% by 2025. This would be the equivalent to 20,000 fewer cars on our roads per year or a reduction of 29,000 tonnes of CO2. This is the kind of brave strategy that guarantees competitiveness.
Agri sector has its own challenges
Looking at the broader Agri industry, though a benign Brexit now looks assured, removing much of the anticipation of damaging effects on this community, there are also other influences at play.
Development of the dairy by-products market worldwide has not been as rewarding as expected a couple of years ago. While infant nutrition still enjoys growing demand as a non-standard product attracting a high gross profit, the sports nutrition market has quickly become saturated, proving challenging for Irish investment in this area.
It’s a sector that is heading for a significant evolution in the coming 1-3 years, in response to European and International policy developments such as CAP reform and trade negotiations. In the longer term, this decade will force agriculture to relook at its output from a long-term sustainability point of view.
The changing facade of retailing
Employing almost 285,000 people, distributed more evenly across the country than other sectors such as IT and Financial services, retailing is the biggest contributor to the Irish exchequer.
It generates 23% of total tax receipts, over twice the yield from financial services at 11%. Over the past three years, revenue from retail grew to a handsome €7 billion, 12% of GDP.
The immediate future for Irish retailing, though, looks precarious. Even with smooth Brexit arrangements ahead, the UK’s influence on this sector could be hard-hitting in 2020.
We are more heavily than ever tied to retailing trends in the UK as an increasing chunk of outlets here are British owned. 2019 has been the worst on record for British retail, due to a combination of increased online shopping (16% of sales in 2019, up from 9% in 2012) and cautious spending due to economic uncertainty.
Can bricks and mortar outlets win back armchair shoppers?
A new trend to ‘own less stuff’ and value experiences over material things is voting with its wallet and hurting consumerism. 2019 Q4 non-food retail sales dropped 1.6% as Black Friday and Christmas figures failed to deliver on past trends and one-third of non-food purchases were made online. Many well-known UK high-street names are now questioning their financial stability.
Subsequent restructuring and outlet closures are bound to be followed by a similar trend here, especially when the nationwide broadband rollout facilitates increased countrywide online shopping.
Currently, 50% of Irish shoppers buy online and a whopping 75% of these purchases are from foreign websites.
Despite these upcoming challenges, we believe there is pent up enthusiasm for growth waiting to manifest as soon as the ink is placed on a Brexit deal.
Compared to a year ago, businesses in this area can more comfortably anticipate the bounce they hope for.