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Political Impact of Brexit on the Consumer Goods Industry

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The UK left the EU on January 1st, 2021 and with that came additional challenges and opportunities. The Purchasing Manager’s Index (PMI) from IHS Markit/CIPS indicates that there had been activity to stockpile ahead of January 1st, 2021.

 

It is believed that there has been faster production growth during November which was linked to a temporary boost from stockpiling. The output rose for a sixth straight month, with the rate of increase picking up slightly, though remaining below the highs seen during the summer.

What will happen to supply chains and product availability post Brexit?

This will involve both the demand and supply sides of the equation. They need to assess how to best address likely supply chain disruptions and capacity limitations that may prevent them from meeting changing consumer needs.


We are seeing retailers already reducing the range of products being sold in store. Manufacturers will need to analyse and forecast the impact of the virus on product availability and prioritize high revenue or high-profit margin products that are in demand when making trade-off decisions. Companies are adjusting to the new bureaucracy involved in trading with Europe. The impact and costs of this remain to be flushed out, but it is already looking as if supply chains will have additional days and just in time schedules will need adjusting.


Forecasting is key and will require constant new modelling and algorithms to be developed. AI and machine learning capabilities will have been impacted by Covid-19, this will cause limitations to this approach. AI and machine learning will struggle to deal with major disruption to trends, the Covid-19 implications are such that companies will need to be more critical in their appraisal of the AI and machine learning outputs. The developed behaviour of reliance on these forecasts could have a significant detrimental impact on a business.

Brexit Graph

Will people want locally (UK) produced products vs imports?

During the expected upcoming recession, many shoppers will trade down to own label or gravitate to the better-known major brands. Private label products saw a surge in demand during the 2008 recession as cash strapped consumers were willing to trade down should see growth in the short term.


Better-known major brands will be particularly attractive in categories considered essential to health and safety. Retailers will need to develop a tertiary brand alternative for those who seek lower prices but don’t want to buy own label. There will also be an opportunity to lift out of the Lidl/Aldi playbook the WIGIG (when it’s gone it’s gone) promotion.


Brexit and the convoluted paperwork/admin associated with the EU may well result in UK equivalents being developed. There may also be a ‘Buy British’ sentiment that manufacturers, encouraged by the government, use as a marketing benefit.

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