We're not all doomed. How we can bounce back from Brexit...

This is an edited version of an article first published today on The-Buyer.net. The new business website aimed at bringing decision makers across all channels of the premium on-trade closer together.

There have been times over the last couple of weeks that the words of Private Frazer from Dad’s Army that “We’re all doomed” have come to mind as we have lurched from one political fall out to another. All played out against a backdrop of a plunging pound that has sent jitters around all the world’s financial markets.

Two weeks on from the referendum vote for Britain to leave the European Union and it feels like we have not gone anywhere. We are no nearer to actually leaving, and certainly no nearer to understanding or knowing what we can expect in the weeks and months ahead.

What we have seen is the rate of sterling fall to its lowest level for 31 years and drop below the $1.30 point against the US dollar.

Even more worrying for a UK drinks industry that imports so much of its beers, wines and spirits from Europe is that the euro and the pound are almost one to one. Well £1 to €1.17 as of today.

There is, though, a growing sense in the trade that we are simply going to have to start making some tough decisions. But, it seems, just not yet.

It feels like we are currently in some sort of virtual holding position, hiding behind our currency reserves - hedged before the Brexit vote - waiting to crash land on a runway our navigation systems haven’t even been worked out where it is yet.

Australian Vintage, one of the UK’s biggest individual suppliers of wine from Australia, gave a sneak preview of what we can expect when it announced to the Australian markets this week that it was set to lose at least A$1 million (£570m) this year as a direct result of shortfalls in currency trading.

We won’t really know the full impact of what Brexit means to the trade until around September when most of our major drinks suppliers and retailers are exposed to whatever the true rate of  currency is at that time.

But either way it appears obvious that prices will have to rise. Prices both from producers wanting to sell their wine in the UK and then prices from suppliers, and distributors to their customers be they in the on or off-trades.

Perhaps the trade should follow the lead of Marc Patch, founder of GM Drinks, who this week sent out a tongue in cheek, but also very real promotion for its Santa Loretta Prosecco. Entitled ‘Brexit Promotion’ it says: “Santa Loretta Prosecco: Was £7.99. Now £8.99. Offer ends when we return to the UK.”

Sadly, in reality, there will no doubt be a push back, starting with the major supermarkets for price rises to be absorbed down the supply chain.

But is it not time for us all to share the pain at this time. And that includes the consumer. Yes, in the short term, price rises can no doubt be pushed back. In the same way that any duty rise some how finds a way of settling down through the trade.

The fall out from Brexit, however, is different. It is unprecedented. It is not just the actual cost price of our beers, wines and spirits that we in the trade need to be concerned about, but the wider implications of a global financial market that is losing faith in the overall UK economy.

More trade support

There has, to date, been a lack of public statements from our leading drinks bodies and trade associations other than the initial reaction that we need to try and keep calm and stick together. There collective uneasiness in saying too much when there is not a great deal to say is understandable. But there is also a need for scenarios to be played out and more practical advice and support about how to handle future trading to be given at this crucial time.

Rabobank, the financial analysts that specialise in assessing the global drinks industry, has today released a report, Beverage Companies in the Wake of Brexit. It does well in setting out the facts and the issues, but it too is short in actually giving any solutions.

As it says itself: “The full effect of the UK’s departure will be difficult to predict.”

But what decisions are made will, it stresses, “have critical implications for the beverage sector”.

Particularly for wine. Rabobank says that whilst it might take years for trade agreements to be agreed between the UK and the various European countries, the fall in sterling means the implications of Brexit will have an almost immediate impact in the way it trades with its main European wine markets.

Equally countries like France, Italy and Spain, that made up 60% of all the wine imported in to the UK in 2015, may rather quickly have to find new markets for their wine if, as Rabobank says, “the soft pound reduce demand for wine imports”. We can expect to see the US, China and Asia become even more strategically important to the main European wine producing countries.   

But it is not just about Europe. As Rabobank points out, the initial focus might be on the European wine market fall out, but Brexit, and the subsequent drop in sterling will have a knock-on effect with all major wine producing countries. Some good. Some bad.

We can also expect to see big changes in how our major suppliers, retailers and national drinks players plan their future sourcing decisions, with shifts to where their exposure is.

One solution will be to hold bigger stocks of wine and spirits in the UK to try and offset the currency  changes. But how much cash flow will companies have to be able to plan too far ahead?

The UK drinks market has already seen an increase in merger and acquisition activity as the competitive edge in size and scale becomes more important. The weak pound might now encourage more international players to make bids for UK drinks businesses. As Rabobank points out: “Changing the value chain by shifting sourcing or relocating activities, either organically or through M&A, may help to mitigate the adverse consequences”.

Either way I can’t see Sergeant Frazer being reassured any time soon.