Dive Brief:
- While the direct and immediate impact of Brexit — the United Kingdom's recent decision to leave the European Union — is greater overseas, food and beverage companies in the U.S. also face potential market ramifications.
- This is particularly true for companies whose sales are highly exposed to the euro, such as Mondelez (40% of sales tied to European exposure), Kellogg (20%), McCormick (14%), WhiteWave (14%), General Mills (10%), and Kraft Heinz (10%), according to a Credit Suisse report.
- Manufacturers could be most impacted by a potential recession in the U.K., higher raw material costs, and increased tariffs across Europe. Companies could, in turn, pass higher costs along to consumers through price adjustments in the near to medium future, according to Credit Suisse.
Dive Insight:
In addition to access to the single free market, membership in the EU also meant protection for certain products that fell under the EU's Protected Designation of Origin.
In Britain, those types of protections were extended to at least 73 products, including Stilton cheese and Scotch whisky, particularly single malt whisky. Without such protections, manufacturers worldwide, including those in the U.S., could potentially use those names for their products.
As American consumers become more interested in international foods and flavors, this could prove advantageous to American manufacturers producing similar products without the original and authentic product labeling.
New tariffs and trade agreements could impact food and beverage across the board, but certain categories may be hit harder than others. Euromonitor data suggests regulatory concerns will most greatly impact confectionery and snack items, such as biscuits, chips, and snacks bars, particularly since the U.K. is the second-largest buying group for these categories behind Belgium, The Daily Meal reported.
Also, these categories tend to be discretionary purchases, which are often affected more than staple items such as rice and pasta in times of economic uncertainty, according to Euromonitor.
U.S. manufacturers in those categories that generate much of their sales in the U.K. or EU are the ones that could see the biggest hit to sales and profits overall, including Mondelez, Kellogg, and General Mills, which aligns with the Credit Suisse report.
Still, the Brexit move isn't finalized yet and still has to be voted on by Parliament. But E.U. leaders have announced that those exit negotiations should begin immediately, as soon as Britain names a new prime minister to replace David Cameron, who announced he would step down in the fall.