Brexit and the online pet food industry
A weakened pound may affect pet food manufacturers
On June 24, people woke up to the news that Britain had voted to leave the European Union. In a couple of years, Britain will no longer be part of the EU. What does the result mean for online retailers operating within the UK pet industry? Swell UK, an aquatics, reptile and pet supplies retailerproduct supplier, offered an analysis.
“No doubt many online retailers and particularly small business owners will be concerned and need to assess what implications the results of the EU referendum will have for their business,” Antony Steadman, managing director Swell UK said in a press release. “However, business owners are used to dealing with challenges every day, the current situation that we find ourselves in is no different.”
As many forecasters had anticipated, the value of the pound fell dramatically following the announcement, to as low as UK$1.32 against the US dollar. The lowest since the 1980s. In the short term, many online retailers top priority will be to ensure continued ease and minimum additional costs of importing EU goods into the UK. However, a prolonged fall in the value of the pound will ultimately result in heightened importing prices over the longer term. Retailers are then with no choice but to pass these inflated costs onto consumers, or sacrifice profit margins. Numerous, well-known pet product manufacturers are based outside of the UK, meaning that many retailers will, if they have not already done so, need to factor increased importing costs onto their business plans moving forward.
However there is a flip-side to all this, a weakened pound means that the price of products being bought from countries like China, which are often able to manufacture and sell goods that much more cheaply than their European counterparts, will also rise. This can actually benefit the strength of European, and particularly British brands. This is because increased import costs dictated by exchange rates which are then passed onto the consumer create a more level-playing field when the price of British brands is that much more competitive.
Tariffs and legislation
Tariffs are notably lower than they were decades ago when Britain first joined the single market; however, the price of many goods imported from Europe will inflate and in numerous instances these costs will be passed onto the consumer. The size of this impact will depend on how successfully Britain negotiates trade deals with the EU and other nations moving forward.
Availability of workforce
Immigration has been a topic that has underpinned many political campaigning tactics in the run up to the referendum. Therefore it is unlikely that the free movement of labour would not be repealed. This would make it harder for retailers across all industries to recruit unskilled workers in particular. Wage inflation could be a potential consequence of this which is particularly worrying at a time when many retailers operating within the industry are already struggling with their cost base following the national living wage and pension auto-enrolment.