Uncertainty surrounding the upcoming Brexit in March of 2019 is causing a tremendous amount of trepidation in a variety of business sectors. Supermarkets are not one that I had expected to hear much about. But supermarkets are front and centre, being called upon by the government itself to prepare for impending doom.
That impending doom is a no-deal Brexit. With the current deal on the table being debated not living up to expectations and unlikely to win a vote next week, a no-deal Brexit is, while still unlikely, on everyone’s mind as the worst possible scenario come March.
If deals on trade and freedom of movement are not concluded by the time Britain leaves the EU officially next year, increased border security between the UK and its neighbours will naturally result. The borderless EU will now end at the UK border. In the case of increased border checks between the UK and France, Britain expects its main trading route between the Calais port in France and Dover in southern England to become excruciatingly inefficient. MPs are expecting the volume of trade entering the UK via this trade route to be a mere 13% of its current level if Brexit does end up preceding any deal being struck with the EU.
That means supermarkets will experience great difficulties in getting shipments of goods to stock and re-stock their shelves.
So, what is the government suggesting? Stockpiling.
The country’s four largest grocers – Tesco, Sainsbury’s, Asda, and Wm Morrison Supermarkets – have told their suppliers to stock-up as a preventative measure against empty shelves in the wake of a no-deal Brexit or hard Brexit. They anticipate 47% fewer goods coming through the Calais trade route, and they anticipate empty shelves within two weeks of the official Brexit date.
Supermarkets are already in a highly competitive industry. Sainsbury’s is jumping on the edible insect trend before its competitors do. Asda and Sainsbury’s are working on a merger to take place in 2019 that will save the newly combined company about £500 million in back-end operating costs like purchasing and distribution and grocery chains throughout the UK have been working hard to become greener and energy efficient.
But supermarket efforts to stockpile are being met with increasing levels of frustration. There is currently a shortage of food warehousing space in the face of such increased demand from all of the supermarkets. That, of course, means the price of what little warehouse space remains available is increasing. Even packaging costs, like cardboard and plastic cases, are increasing. In times of crisis, everyone looks for someone to blame, and in this case, many grocers are entertaining the rumor that Amazon has booked available space even if the spaces it books remain empty, just so it can enter the food market in the UK in the near future. With possible food shortages on the horizon, this would be nearly unforgivable – if it’s true. Amazon has now become the boogeyman of the supermarket industry.
The stockpiling strategy is being promoted by the Department of Health, which is creating contingency plans in the case of a no-deal or hard-deal Brexit. One plan is to ensure that six weeks’ worth of priority goods, especially medicines, are stored up before trade access is severely disrupted for up to six months. Other measures include increasing port capacity, getting more cargo space, acquiring refrigeration units, and flying in medicine on planes for quick delivery.
It can’t be argued that the Department isn’t acting responsibly and cautiously to prepare for the worst, but it does feel a bit like the UK is preparing for war or natural disaster, not just a move toward greater sovereignty. One official suggested possible rationing isn’t too far-fetched an idea right now. Of course, if the worst does happen, some things cannot be stockpiled – primarily, fresh produce – signaling a possible increased reliance on canned goods and almost certainly less product diversity. All of this is eerily reminiscent of eastern Europe as it existed under Communist rule.
All-in-all, times of crisis bode disaster for some industries while boding well for others. Owners of warehouse space and suppliers of packaging materials should fare well in the current climate, with demand, and therefore prices, on the rise. Storage prices rose by 15% per pallet over the last few weeks, and chilled storage space is all taken. Ports and cargo plane service operators should also be in a good position to take advantage of the increased demand for their services. Even canned goods suppliers could enjoy an uptick in business.
The picture is less clear for supermarkets. Some that do a lot of exporting are stockpiling in those countries to make sure their external markets are also somewhat protected. And those that moved early to secure temperature-controlled warehouse space will be able to stockpile the most and keep their shelves full the longest. Even what exactly to stockpile is a strategic move right now that takes a good deal of forethought about consumer needs. This could spell disaster for the supermarkets that lose this war; consumers could very well make a permanent shift to new supermarkets in the aftermath of Brexit.