What Brexit means for Scottish businesses

A business employing 1,600 people and exporting to more than 100 markets globally, it comes as no surprise that Walkers Shortbread has been working on a plan for Brexit over the last two years. The business was founded by the grandfather of the current joint Managing Directors Joe and Jim Walker. It was established as a village bakery in 1898 and is now one of the country’s biggest food exporters. Walkers imports a significant quantity of raw materials from Europe and beyond. Brexit preparations have safeguarded the business – at least insofar as it is are able to foresee – from otherwise potentially difficult outcomes.

In a newly published report prepared by EY for the Scottish Government, 74% of Scottish businesses said they have taken steps to prepare for Brexit, while only 8% feel fully ready. The remaining 18% reported that they did not feel ready for Brexit at all – a worrying albeit understandable statistic, according to Walkers: “Of course preparing for Brexit is important, but we can absolutely understand why some haven’t started yet as, frankly, it’s difficult to know what’s going to happen. It’s not at all easy to prepare for something like this.”

For Walkers, and a great deal more Scottish businesses besides, it is this climate of uncertainty that has caused the most significant headaches since the UK voted to leave the EU: “We expected a resolution to be unfolding by now, but this hasn’t happened. Uncertainty is still rife, though, and more so now than ever before.”

Erica Moore, who founded Eteaket a decade ago and now supplies tearooms across the country and the Channel with whole, quality, loose-leaf tea, echoes Walkers concerns: “Uncertainty is the biggest problem right now. It’s difficult to plan for eventualities if you’re not sure what’s going to happen. We just have to plan for the worst and hope it doesn’t come to that – but at least if it does we’ll have a plan in place.”

The problems

Although Scotland is making small but significant inroads into tea growing, the likes of Eteaket is heavily reliant on raw materials imported from Japan, India, China and Sri Lanka for scale and growth. Teabag materials and packaging also come from overseas. Currency fluctuations are therefore a very real threat to Erica’s business, and one that she began to feel immediately following the referendum.

Indeed, the weak pound hasn’t brought many benefits at all to either Eteaket or Walkers. “It’s sometimes a benefit when shipping and sometimes a benefit when selling, but many commodities are denominated in dollars,” says Walkers.

Exporting is an equally significant concern in the current climate. “If the product is going to get backed up at customs we have to think about how long it’s going to take to get through,” says Erica. “That’s going to be a nightmare in the short term. Food and drink exporters are particularly vulnerable, as there’s already a question of time.”

Walkers is no exception. Around 45% of its production is exported, meaning that border delays caused by additional custom and documentation could have serious ramifications for the business. So, too, could export tariffs – an aspect of Brexit that needs a considerable clarification over the coming weeks. As for the UK falling back on World Trade Organisation rules in the event of a no-deal Brexit, Walkers believes that would be very challenging: “Some of the duty rates are very high, and that goes for import and export, particularly for agricultural products”.

Labour represents yet another major issue. Of 1,600 employed at Walkers, 500 are from Europe. In a low population density area like the Highlands of Scotland, and particularly for seasonal businesses, that workforce is crucial. The number of foreign nationals coming to the UK has dropped, though, and that’s got businesses like Walkers understandably concerned. Even Erica, whose business boasts a tearoom and a concept store in the centre of Edinburgh, has noticed a drop in applications from foreign nationals – Europeans in particular – since the referendum.

Preparing for Brexit

Business in Scotland and the rest of the UK right now is tough. Above and beyond creating additional costs, uncertainty around Brexit and the future of the UK’s relationship with the EU is distracting from the core task of meeting customer’s needs.

So what are Eteaket and Walkers doing about the situation? Both are preparing for the worst case scenario but hoping for the best result. Anticipating a no-deal scenario, and consequent delays in raw materials coming across the border, Erica has made sure the business is holding more stock than it ordinarily would come March. “This is to give us time to plan so that we don’t make any knee-jerk reactions,” she says. “Obviously it’s a relatively short term solution, but it will give us time to work out what changes need to be made depending on the outcomes. We want to be able to hold our prices and not have to make any changes in the foreseeable future.”

Walkers, meanwhile, has assessed raw material suppliers and services such as shipping and packaging to ensure continuity of supply and to protect costs. “In all of these areas we have maintained long-term relationships with established suppliers and are confident that they’ll remain unaffected,” they say. “However, we may have to make alternative arrangements should problems arise. Until negotiations are concluded we’re going to continue to plan for the worst-case scenario in all potentially problematic areas of the business.”

When it comes to labour, both Erica and Walkers are equally unsure how they’ll be affected. In the meantime, both are committed to hiring the best talent they can and hoping that they can and do remain. Walkers is hoping there’s not an anti-European atmosphere across the country in the wake of Brexit: “Our European employees have blended into life here very well and are real assets to the area as a whole,” they say.

As for exporting, Erica aims to capitalise on a growing appetite beyond European markets for whole, quality, loose-leaf tea as well as products with a Scottish twist – an opportunity she believes Scottish business across the board should be embracing. “Our teas with a Scottish twist are proving very attractive overseas. Our Isle of Harris Gin Tea, for instance, uses sea kelp that’s been hand-dived off Harris. Hopefully the price of that won’t go up!”

Walkers are already established in several non-European markets. They say: “We’ve always given good attention to other markets. It’s therefore hard for us to pinpoint any obvious benefits of Brexit; we’ve already got existing and good relationships with non-European markets, and we’ll seek to continue them regardless of what happens with Brexit. All businesses in Scotland are going to have to focus on the areas that are going to be most crucial to their survival, and in many cases that’s going to be a case of focusing on the markets that they serve best.”

This isn’t to say Walkers take consumer loyalty for granted. Indeed, the business’s best advice for businesses currently navigating the waters of Brexit like Walkers is to remember above all else the fundamental need to provide a quality product and service: “In a world full of cheap products, Scotland’s reputation for high-quality products is more pertinent than ever. If you’re confident of your quality, everything else will follow.”