Brexit and the restaurant sector

25 January 2018
It’s still unclear whether Brexit will take place and, if so, what form it would take. Would it be a hard Brexit? Soft? Canadian? With access to the Single Market? With access to a Single Market? We don’t know, and 2018 will no doubt be a year in which we gain a better understanding of likely outcomes. Indeed it may be a decisive year.

This uncertainty weighs on the restaurant sector some of whose customers may restrict discretionary spending in light of economic uncertainty and whose supply chains depend on timely supply of fresh produce. Indeed many depend on sufficient numbers of skilled staff from continental European countries who may now feel uncomfortable in the UK. What can restaurants do?

Most restaurant groups have long had detailed ongoing discussions with suppliers about quality and price and Brexit simply adds an extra dimension. Some have diversified to use more than one supplier for a given product or have probed more deeply into the supplier’s own supply chain to get comfortable that it is sufficiently robust. The fall in the value of Sterling since the Brexit vote must be considered too, as it makes the import of produce from the Eurozone more expensive. International VAT and Customs Duty planning both pre and post Brexit are recommended in managing both the tax cost on goods in the supply chain and also the timing of the costs involved.

In order to hire and retain staff, restaurants face the prospect of rising wages. This can be an issue for both front office and back office. For higher paid staff, the use of share option schemes such as EMI schemes can be attractive (and for a growing business less costly than cash bonuses).

Restaurants considering international expansion to balance UK risk may seek to accelerate their plans. Much depends on to what degree a franchise model has been established and what appetite there is to own / operate outlets abroad. Post an eventual Brexit, Dublin provides a toe in the water in an English-speaking Eurozone environment. Dubai is popular too as is the US (although compliance costs can be high). Cross-border tax planning can help restaurants get the right structure for them, help them be fully compliant in the countries they do business in, and help them manage their tax exposure on royalty streams relating to their brand and their franchise arrangements.

Technology and the embrace by consumers of online ordering is likely a significant factor for many restaurants in 2018. Given the considerable year on year rise in home delivery services such as Deliveroo and Ubereats, restaurants who can adapt their offering to extend their addressable customer base, will likely prosper too.

Overall, if Brexit goes ahead, the likely winners in the restaurant sector are those businesses which have a robust supply chain, a good pool of available staff and whose brand equity and value proposition in the marketplace allow them to pass on cost rises to their customers. Overall 2018 will, for many, be a milestone year. 

If you would like to discuss any of the issues in this article, please contact your normal Hillier Hopkins contact or a member of the restaurant and retail team.

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