Just under a thousand, or to be precise 968 ‘days ago’, the UK referendum to stay or leave the EU resulted in a decision to leave, by a margin of 52% to 48%. The number of ‘days ago’ is stressed here as this needs to be considered against there now being less than 42 days until the 29th March 2019, the leave date.
Put in percentage terms, the number of days between the referendum on 23rd June 2016 and the leave date of 29th March 2019, 96% of the time to plan has elapsed, and 4% remains.
With only 4% of the time allocated to plan anything remaining, most ‘planners’ would be hoping at that stage to be in a position of only having to adjust very finely, if at all. The UK government is clearly nowhere near that ‘planning’ point.
So, when we look at the current state of Brexit and the implications for hospitality, it looks challenging to say the least.
We look at two fundamentals…
Fundamental One: Food and Drink
Hospitality is in the business of providing food, drink and accommodation to customers.
Food and drink prices will certainly increase post Brexit, the only debate seems to be by how much. The leaked government report – EU Exit Analysis: Cross Whitehall Briefing – Parliament UK – paints a bleak picture for food and drink. The predictions are that tariffs, both incoming and outgoing will be around 13%.
Incoming Tariffs: Approximately 30% of the food we eat in the UK comes from the EU, and another 20% comes from non-EU countries (see Figure 1 below).
With 50% of our food imported potentially being subject to a 13% price rise, a move in cost of 13% has substantial implications. There is only one way for those to be countered, customers being asked to pay more.
The UK increasing food production to even start to replace imports is a nonstarter. As a survey by the National Farmers Union shows that over 90% of seasonal workers on British farms come from Eastern Europe. We will come back to people implications in more detail below.
So, faced with this level of price rises, many consumers will be left with no choice but to reduce their frequency of eating out.
A reduction in footfall at any hospitality venue will cause the business difficulties, coupled with food price rises, this presents even more of a challenge for many if not most.
This is only half the problem the hospitality industry faces today amid continued uncertainty over Brexit.
Fundamental Two: People
Hospitality is in the business of people serving food, drink and accommodation to customers.
Between 12 and 24% of the people working in hospitality in the UK currently are EU nationals. There are regional variations, with 75% of waiters and waitresses in London for example being EU nationals.
The immigration White Paper setting out post-Brexit rules for migrants will make it even more difficult for employers to recruit EU nationals post Brexit.
Most EU nationals working in hospitality in the UK work within low skill and low pay segments and being transient need replacing frequently.
Hospitality already faces acute people and skills shortages; the immigration White Paper rules post-Brexit will make it even harder for hospitality employers to find new recruits for roles.
EU migrants earning less than £30,000 a year will be expected to leave after 12 months, and unable to re-apply for entry back into the UK for a further 12 months.
These rules will not only slow down the availability of workers, worsening the people shortages, they will slow down investment in skills development, worsening the skills shortages. How can employers be expected to significantly invest in employees they can only retain for 12 months?
This is not all future tense either, yesterday Millennium & Copthorne reported lower profits and blamed this in part on EU migrant staff having Brexit worries. The FTSE 250 operator of hotels in Central London said it faces real difficulties in recruiting EU workers that make up over half the hotel’s total London workforce.
If there are fewer people available for roles this can only put pressure on employers to increase pay and/or benefits. Once again to be passed onto the consumer and once again, through the same sequence of processes cited in Fundamental One, reduced footfall can be the only effect.
With only 4% of the Brexit project timetable remaining, or just under 42 days, can the government somehow rescue the situation? We hope so, but performance to date suggests not. A no-deal Brexit now seems inevitable, those that prepare best for this outcome will fare best in the storm ahead.
We hope our reading of the current situation is wrong and will be pleased to admit as much.
The bookies currently have the odds of a no-deal Brexit at 7/4 . We are not in this article suggesting anyone should bet on anything, and we certainly won’t be. If any readers think we are being pessimistic please remember, bookies normally don’t get too much wrong.
We suggest to also remember, and at the risk of repeating ourselves, that the hospitality businesses that prepare best for the outcome of no-deal Brexit will fare best.