Report says Brexit threatens consumer businesses’ profitability

The report by management consultancy Oliver Wyman said in the worst-case scenario a UK-based food retailer would see its profit drop by 128% unless it raised prices by 7.8%, but that almost all consumer businesses would see some loss in profit whatever the final deal reached.

Oliver Wyman examined businesses’ profit margins under five Brexit scenarios, including if the UK remained in the single market, but not the customs union, and vice-versa; if it achieved a bespoke deal on the customs union; and if the UK left both the customs union and single market and either applied World Trade Organisation (WTO) tariffs on goods, or applied zero tariffs.

The report said each scenario would affect sectors differently, depending on their cost base. For example retailers of goods such as electronics would be more affected by a scenario imposing WTO tariffs.

The report suggested businesses should try to mitigate the effect of any scenario by first identifying their cost base and the risks they could face. It said businesses particularly affected by changes in import costs, such as clothing retailers, should put in place purchasing arrangements enabling them to switch between suppliers in different countries as quickly as possible.

Meanwhile food retailers needed to consider non-tariff barriers such as border control, as delays at the UK border could cause higher waste and shortage if food expires before it can be sold.

Automating simple tasks could help cut labour costs, the report suggested, and differentiating from the competition could also help a business survive.

“It is unlikely that it will be possible to mitigate against all cost increases, so businesses will have to decide how much of the additional costs from Brexit they can afford to pass on to consumers, while staying aware of how their competitors are responding,” the report concluded.