EXCLUSIVE: Suppliers face forecasting challenge as true impact of Brexit keeps market guessing

Brexit illustration

It’s been one of the most turbulent and highly-charged periods in British political history — and yet we are still no closer to knowing exactly what Brexit will mean for business and commerce once the dust has settled. And while every organisation is endeavouring to assess what the short- and long-term implications might be for their operations, many will be wary of jumping to conclusions too quickly.

This uncertainty is undoubtedly being felt in the UK catering equipment market and none more so than in the prime cooking equipment sector, where the eclectic mix of British and overseas brands, importers and exporters, makes for some intriguing dynamics at the best of times.

Nobody is quite sure who the winners and losers will be from the referendum result, but before suppliers can even begin to examine the long-term impact they have got to deal with what’s in front of them first.

Nick McDonald, managing director of Lincat, says there are two main factors that the industry has got to get to grips with: business confidence and exchange rates. “It is too early to assess whether the Brexit vote will undermine business confidence, leading to lower investment in new kitchen equipment,” he says. “I certainly hope we shall not be plunged into recession, but our experience of past economic downturns is that customers tend to switch to lighter duty equipment in times of difficulty.”

What we do know is that, in the few weeks that have passed since the referendum, sterling has crashed against both the euro and the US dollar, which in turn has led to upwards pressure on imported component costs.

For the time being we are keeping calm and carrying on as normal, but if the pound fails to recover over the longer term then a pricing review will be required”

British catering equipment manufacturer GDPA, which owns the Burco and Lec Commercial brands, says it saw a spike in component prices of between 10% and 15% in the days immediately after the result. Managing director, Mike Butt, acknowledges that the devaluation of the pound remains an issue for British manufacturing businesses, either because they face an increase in component costs or because imports from rival brands may become cheaper.

“That is going to challenge margins moving forward; potentially it will challenge user pricing moving forward. I think it just depends on how long it lasts and whether it stabilises. The longer the uncertainty goes on, the more risk we have got of the pound devaluing,” he says.

Butt says that GDPA has some short-term leeway on pricing as it forward-forecasts on currency, but admits the company will be working hard to try and take any added cost out of the supply chain and improve its efficiencies. “The last thing we want to be doing is [increasing prices],” he says. “It is always easy to ride on the back of these things, but at the end of the day I think people remember the businesses that have worked hard to try and mitigate these costs as much as possible.”

IMG_3620Other manufacturers are also wary of making knee-jerk reactions to pricing, but are realistic enough to know that their ability to prevent price hikes depends on the extent to which the market stabilises. “We can ride this out in the short-term, but if sterling settles at a low rate then we shall have to review prices in the longer term,” concedes Lincat’s McDonald.

For Charvet Premier Ranges, which imports cooking suites through Charvet’s French factory, the prospect of having to put prices up to counter the falling value of the pound versus the euro is something that can’t be ignored. “Obviously for the time being we are keeping calm and carrying on as normal, but if the pound fails to recover over the longer term then a pricing review will be required,” says managing director Wayne Cuomo. “It is very much a case of ‘watch this space’. For the time being we take the fall in value of the pound on the nose.”

Cuomo remains upbeat about the overall situation and, for Charvet at least, there are reasons to be optimistic in the face of any lingering economic concerns. “Our market is very much the restaurant trade and they should benefit from the increased tourism that a lower pound will generate, allowing them to become busier and make more profits, and eventually build new kitchens,” he says.

Graham Kille, managing director of Frima, is also adamant that any downturn will only prove to be temporary. “There will be an initial reaction to Brexit, however we expect it to have only a small effect on our business,” he says. “Customers will still want to invest in equipment that will benefit their business and deliver savings in operation costs, while enhancing food quality. That’s our opportunity. We still plan to recruit new sales managers and to continue to grow the Frima business in the UK,” he says.

Customers specify products they know will do the job they need — from suppliers they can trust to support them — and I wouldn’t expect that to change despite the decision to leave the EU”

One of the more intriguing questions that surrounds the industry is who is better placed to benefit from Britain’s exit from the EU: companies that manufacturer cooking suites in the UK, or those that import from outside?

Steve Loughton, managing director of foodservice equipment importer Jestic, thinks it will depend heavily on the individual manufacturers or suppliers and their respective customers. “We are in a highly performance-driven market place, which also has a cost-conscious user base, but customers specify products they know will do the job they need — from suppliers they can trust to support them — and I wouldn’t expect that to change despite the decision to leave the EU.”

On the other hand, says Loughton, Jestic is fully prepared for its Technical Service division to see increased activity should clients delay capital expenditures and place greater emphasis on service and repair instead.

One perfectly logical viewpoint is that if British equipment becomes cheaper to overseas buyers as a result of currency rates, domestic manufacturers with strong export links could be well-placed to cash in. “British equipment manufacturers may benefit from Brexit providing they can crack foreign markets in a timely fashion,” says Gary Evans, managing director of Active Food Systems, which manufactures the Synergy Grill brand from its base in Cambridgeshire. “Manufacturers importing to the UK may struggle if there’s less money in the UK and what money there is doesn’t stretch as far as the pound has been devalued, making purchasing from abroad more expensive for UK businesses.”

Bistro oven from Jestic 2Even with the increased price of components sourced from abroad factored in, a large chunk of sterling costs are still built into the work that most British manufacturers carry out.

As Lincat’s McDonald remarks: “In the immediate aftermath of the Brexit vote, sterling fell by 7% against the euro and by 10% against the US dollar, so UK manufacturers should gain a price advantage over both European and American imports.”

Steve Hobbs, managing director of Grande Cuisine, which brings in cooking equipment from France to the UK market, has a different perspective. He not only thinks that the poor performance of sterling could make increased end-user costs unavoidable, but speculates that UK exports may suffer as a result of new trade tariffs being imposed. “The future is uncertain and for that reason companies will be postponing investment decisions until things become clearer over the next six to 12 months,” he suggests.

Hobbs adds: “At the same time, restaurateurs and hotels may also crack down on investment, while foodservice operations such as those in government, health and education sectors may reduce spending. We may well have ‘imported’ inflation into the UK with the reduction in sterling value against the euro and dollar, which could result in investors looking for more cost-effective solutions and short-term planning.”

In reality, not even the most acclaimed business and economics analysts know exactly how matters will play out. “There is too much going on at present to make a prediction of the longer term changes following the decision to leave the EU,” argues Jestic’s Loughton. “I doubt that as a nation we have ever seen a position where both our major political parties have the current level of instability, while the SNP are campaigning to overturn the Referendum conclusion for Scotland at the same time as we have made a historic decision to leave the EU.”

It’s normal for companies to claim it’s ‘business as usual’ when encountering periods of adversity, but with currency swings, market confidence issues and economic uncertainty to deal with, this tried and trusted party line has never sounded less convincing. For the market’s prime cooking suppliers, it’s very much a case of taking one day at a time — and resisting the urge to reach for the panic button.

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