In ‘n’ out: the impact of the EU referendum on foodservice

A British exit, or 'Brexit', from the EU may have far-reaching consequences for the sector. Ellie Clayton speaks with those for and against the argument in advance of the June referendum

“If we didn’t have any (European immigrants), all of my restaurants would close tomorrow.” Jamie Oliver’s much reported statement in Good Housekeeping magazine was intended, back in 2013, as a warning over the looming skills shortage among British workers, but as the UK prepares to go to the polls over its membership of the EU in June, could Oliver’s hyperbole become a reality?

In a debate that has so-far been characterised by hypotheticals and with the majority of responses governed by “gut-feeling”, for the UK foodservice sector, labour is perhaps the most tangible impact of an exit vote. The foodservice industry, in the throes of its own skills crisis, is heavily reliant on EU migrant labour, from front of house to fruit picking.

In fact, in March, Mark Allen, co-founder of The Change Group hospitality recruiter told Big Hospitality that almost 60% of the candidates registered at Change were from outside the UK, 48% of which came from countries within the EU. While some estimates of the current UK skills gap value it at around 100,000 jobs in the sector.

Labour is the single most pressing impact of a potential exit from the EU, and is a problem entrenched in the sector’s recent history, says Peter Backman, managing director at Horizons FS.

“It’s about employment and getting the right people. Of course we ought to be training our own people up to get the right skills, but that’s been the history of the past thirty years, and we haven’t done it yet.”

Even this, in the context of the EU debate, however, is not a certainty. No concrete decisions have been made about what British immigration policy will look like outside of the EU. There are two scenarios, says Backman, either some form of free movement of labour would remain, an alternative favoured by vocal “leave” supporter Tim Martin, chairman of the JD Wetherspoon pub chain, but one which would seem to undermine one of the biggest drivers of the campaign. Or, without it, the availability of an important part of the workforce would dry up.

That the debate centres largely around immigration is not surprising, and the “influx” of EU migrants is often used as a highly emotive tool for the “leave” campaign. In his weekly column in the The Sunday Times, Luke Johnson, chairman of private equity house Risk Capital Partners, and chairman of a number of British foodservice and restaurant brands, calls the value of EU migration into question.

“Of course, skilled immigrants can add value. Arguably some businesses have benefited from low-cost labour coming to Britain to work – mostly from poorer EU countries,” he writes, “But permitting uncontrolled entry of unskilled immigrants from the EU, while heavily restricting immigration of skilled labour from elsewhere, makes bad policy.”

Cash in pockets

Another major question mark hangs over the economic position of the UK if it were to leave. A recent statement from the Bank of England financial policy committee warned that heightened and prolonged uncertainty had the potential to drive up interest rates and could lead to a credit crunch. On the other hand, Moody’s credit agency rated the threat to the UK economy and jobs as “low”, after the CBI’s own estimated that it could cost the UK economy £100bn and nearly one million jobs.

The economic impact is not certain, but economic flux, if it comes, could affect the sector in two key ways, says Backman. “If it’s to do with money in peoples’ pockets,” he says, “the eating out sector will be affected.” If the economy shoots up, the eating out market will shoot up. “If it collapses, the market will suffer.”

The extent of this, however, again, remains to be seen. “If there is less money in peoples’ pockets then they do tend to change their eating out habits, but in general, eating out is such an embedded part of the economy now it will not necessarily be affected hugely.”

More significant however, will be the impact on the non-commercial sector. If economic uncertainty hits government spending, says Backman, then the budget for things like schools and hospitals, and in turn their catering facilities, could suffer.

Export and law

Next, comes food production and export. The UK currently has a widening gap between the amount of food that is imported and exported, a deficit that is currently worth about £21bn. What’s more, major British companies, including Compass Group, Costa, and many more may not be able to “export or develop in the way they could before”, Backman speculates – largely due to their tendency to develop their brands by setting up businesses outside of the UK.

There are tens of thousands of bits of law related to our relationship with the EU, many will have to be negotiated, and it could be, says Backman, “that one of the effects is to make it more difficult to set up a British business overseas”. Paul Walsh, the current CEO of Compass Group’s signed a letter in The Times in support of the “stay” campaign in a personal capacity.

But, reminds Johnson in his The Sunday Times column, only 10” of SMEs trade with the EU, but are restricted by its regulatory burden. Independence, he argues, could help smaller UK businesses develop.

This concern is also reflected in mainland Europe. For large German organisations like BMW for example, says Martin Rahmann FCSI, chair of FCSI EAME and owner of Agere consultancy in Erkrath, Germany, the business relationship with the UK is crucial.

“From my personal opinion and most of Germans, the UK has a very strong economy, and 80% of our business is export, the relationship with the UK is hugely important to our business.”

In a note to the market, Morgan Stanley warned on the negative impacts on trade between the UK and the rest of the UK.

It said, “The trading relationship the UK has with the rest of the EU will not be as beneficial, as ‘free’, as it is at present. This, and the lengthy period of uncertainty around the exit negotiation will have taken its toll on UK growth and dampened demand for Eurozone goods.”

Transaction costs, for businesses in both the UK and mainland Europe, could rise, says Georg Weber, president and CEO of MKN, a foodservice company, also based in Germany.

“That is an inefficiency,” he says. “That means you lose money for duties and that is not good for the competitiveness of Europe. It would be good for, maybe, some other regions of the world, but not Europe.”

Foodservice is a global industry, says Rahmann, with British and European individuals and companies working across the globe, not just within the European Union. Economic fluctuation therefore could have another impact, he speculates, if the value of the pound were to fall, British consultants working overseas would become cheaper, and therefore more competitive.

For Rahmann however, like most on either side of the argument, without a crystal ball, his personal view is driven by an emotional response, the irony that this debate is happening in unison with FCSI EAME’s own ongoing negotiations with the UK & Ireland organisation.

“We would love to have FCSI UK & Ireland to have its own unit and remain involved, I think its similar to what the Germans think about the European Union,” he says. “For me it is unbelievable that the UK would leave.”

Ellie Clayton

 

More Relevant

View More