With the Brexit deadline looming ever closer, a new report from corporate financial advisory service Duff & Phelps has said that FMCG suppliers have been forced to stockpile increasing levels of raw materials to ensure products remain on the shelves after 31 October.
In addition, the group said that the climate of uncertainty over Brexit means strategic business decisions such as capex investments are increasingly being put on hold.
Production Requirements
“Manufacturers and suppliers of FMCG consider supermarkets as their core customers," commented Jimmy Saunders, director, restructuring advisory, Duff & Phelps. "However, the uncertainty surrounding Brexit means many manufacturers have to stockpile both raw materials for production and finished goods to ensure product stays on shelves and they meet customer demand.
"This is placing a further burden on working capital, which is locked up in stock at a time when investors are cautious about increasing lending," he added.
In addition, suppliers will be forced to deal with foreign exchange fluctuations in the event of a no-deal Brexit, not to mention additional tariffs, which could impact raw materials coming from Europe, Duff & Phelps said.
'Longer-term productivity levels have experienced a marked decline in growth in the UK since 2008, and with investment in future productivity on pause, companies may be creating problems for the future when UK plc finds itself improperly equipped to compete in the post-Brexit world,' the group noted.
Perfect Storm
According to Saunders, Brexit ambiguity has created a "perfect storm" for FMCG manufacturers and suppliers.
"Following an increase in supermarkets’ use of discounting and double-up promotions, suppliers have found themselves increasingly vulnerable and under pressure to fund their customers’ promotional activity through buying premium shelf space or funding discounted products," he said.
"Although this may lead to a short-term spike in sales, the constant race to the bottom on pricing is predominantly funded out of the supplier’s pocket."
Duff & Phelps is a global advisor on areas such as valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues.
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
