The impact of Brexit on the spirits industry

How spirit brands are preparing for Brexit…

Bacardi, Pernod Ricard and LVMH are reported to be stockpiling in preparation for a no-deal Brexit.

The Wine and Spirit Trade Association (WSTA) has been advising members for more than a year to increase stock by 20% as a starting point in case of a no-deal scenario which is now an almost certain eventuality.

The WSTA has also warned that a no-deal Brexit will mean that the UK would lose access to the EU’s excise movement control system, which tracks alcohol coming in and going out of the country and which documents shipments electronically. This is likely to cause delays at the ports due to increased paperwork required.

Fears of delays and increased costs due to increased tariffs at ports have led to drinks giant Bacardi stockpiling alcohol.

Although many industries have seen companies packing up and leaving the UK to set up shop elsewhere due to fears over Brexit, it seems that the 800 UK employees of Bacardi can sleep well at night. The spirits giant has reported that it will be keeping its British distilleries regardless of whether a deal is reached.

“On a scale of what the family has weathered over the last 157 years, Brexit isn’t even a blip on the horizon” says Amanda Almond, Bacardi’s managing director for UK and Ireland. (inews.co.uk)

I think Ms Almond makes a fantastic point when she says that “It’s hard to make a London gin not in the UK and you can’t make Scotch malt whisky anywhere but Scotland.” (inews.co.uk)

Tom Warner of Warner’s gin is less optimistic, and believes that Brexit will mean that people will have less money to spend on premium spirits and that consumers will move to purchasing cheaper spirits instead of premium name brands, causing financial turmoil for premium brands.

Is it all doom and gloom?

It can be said that there is an opportunity for a boost to the alcohol market.

When the UK exits the EU on 31 October 2019, it will become a ‘third country’. Under current EU law, EU travellers can take advantage of duty-free sales if they travel to a third country.

A duty-free environment could increase the number of duty-free shoppers, meaning more exposure and opportunities for higher-end spirits.

The Belfast Telegraph suggested that Irish consumers will make trips to the UK purely to buy duty-free alcohol and cigarettes on their return if there is a no-deal Brexit. Conversely, this would negatively affect the Irish economy.

Although this would mean a boost in sales for the spirits industry, it may undermine the responsible drinking ethos which most reputable spirits companies exude, so they are unlikely to be seen promoting this opportunity for travellers to bulk buy cheap booze.

Conclusion...

Overall, it seems likely that there will be increased tariffs and delays at the borders which could have an impact on supply agreements. Spirits companies should carefully examine the terms of the agreements that they have in place to supply alcohol to ensure that they will not be faced with fines for delivering alcohol outside of agreed timescales.

Additionally, with the price of Sterling set to take a hit when we pull out of the EU, companies are likely to see profits decline and previously profitable agreements may become unprofitable and even costly to companies. Renegotiation of terms may be a wise course of action over the next few months.

As we discovered, it is not all doom and gloom, as the lure of duty-free alcohol may see sales increase after October 31st.