Brexit – Good or bad thing for the UK independent drinks industry?

As the economic and political tectonic plates continue to clatter together in the wake of last Friday’s referendum vote, the UK drinks industry is taking stock of what lies ahead.  With so much volatility in the economy, it could well signal a downturn in fortunes for the industry’s independent producers.  Or does it?

If we look at past performance of the brewing industry in previous recessions, it’s comforting to note that the stock of major beer-producing companies actually rose during the dotcom fallout of the late 1990s.  This is probably in large part due to the consumer’s reluctance to stop purchasing ‘everyday treats’ even when times are difficult.

Some drinkers no doubt, will migrate from more expensive brews to more affordable ones, but in the recent past we’ve also seen wine and spirit consumers move towards buying better quality beers and ciders as a viable alternative tipple that still represents quality.

English Wine could also take some advantage according to Richard Balfour-Lynn of Hush Heath Estates, “Leaving the EU is a great opportunity for the English wine industry to reduce duty and encourage more home-grown sales.  It may well mean that the prices of European wines increase here, and that English wine prices come down.”

According to Kate Nicholls, CEO of ALMR, there are other potential benefits further down the line.  ‘Though we don’t expect a bonfire of regulation, the decision to leave the EU will give the government greater flexibility to adjust factors such as VAT and alcohol duties, which can have an enormous bearing on the health of our sector. Outside the EU it would be possible to have a differential duty regime based on point of sale or a significantly lower sales tax. Similarly, there are reams of environmental, food and labelling legislation initiating in Brussels and though we would not expect these to be a priority over the coming years as the UK disentangles itself, in the longer term there is the possibility for a significant reduction in burdens on property-based businesses.’

Another concern is the export market.  According to a recent SIBA brewers survey nearly 17% of respondent brewers are now exporting their beers.  A significant percentage of sales goes to EU countries such as Italy, Sweden, France and Germany but it’s encouraging to see that UK brewers also sell in significant quantities to US and Australian markets and some have exports reaching as far as to Canada, Japan, Russia, and China.  The Norwegians are also fond of our beers and another non-EU country we can trade with closer to home. These markets represent an opportunity of considerable size once the duty situation has been set and stablised in hopefully the not-to-distant future.

Our competitiveness in the EU markets of the future remains to be seen, but it’s also likely that there will always be a market for excellent quality products which can hold their premium price point even in the face of changing economic conditions.  The best way to win this market battle in the long term is to produce great tasting drinks with strong and attractive branding.   

Many entrepreneurs who have helped to drive the new progressive, artisan drinks moment in this country originally hale from the EU.  Fruit and hop pickers and other agricultural labourers have also had a tremendous impact on our ability to nurture and harvest good quality ingredients.  Despite all the recent scaremongering in the press, we believe it’s unlikely that the UK government will make it difficult for these talented and productive people to remain.  On so many levels, the UK will lose out if it doesn’t continue to harness to the spirit and contribution of EU nationals who have already contributed so much to our independent drinks industry. 

Fluctuating currency rates and increasing taxes will also have an impact on ingredients brought in from abroad.  The price of US hops for example, which will be affected by currency changes, is going to hit hard on craft brewers who rely heavily on the exotic flavours of these far-flung hops.   This is an issue that is more difficult to alleviate but may be solved with a more creative approach to future product development.  If the ingredients prove to be too expensive, producers may need to seek out other brews that can still excite and attract the UK consumer.   This also needs marketing, PR and consumer education to encourage the customer to try new things.  The Wheat Beer Challenge at next month's Imbibe Live event is a case in point.

Once upon a time, we drank bad coffee, thought Blue Nun was the height of sophistication and had to suffice with warm, brown, tasteless ales.  In recent years, the UK artisan drinks industry has changed radically and very much for the good. So surely it’s not beyond the realms of possibility that the famous British creativity and progressive thinking that drove this change can also be applied to overcome any further challenges that hit us.  Watch this space for interesting times ahead.