The perfect storm

No-one disagrees that the UK economy has been hit hard by the coronavirus pandemic and any recovery has been delayed by further resurgence of the virus, renewed public health restrictions, and the shutdown of foodservice, catering, and hospitality sectors once more.

In an almost perfect storm, on top of the pandemic UK business are also having to deal with the double-whammy implications of our exit from the European Union and a very late Brexit trade-deal agreement. At the eleventh-hour the UK & EU reached an agreement on future trading terms, but the way in which UK businesses trade with our EU counterparts is changing substantially and is already causing disruption to trade at the start of 2021.

Dealing with either of these phenomena in isolation would be difficult for most businesses, with only the strongest and most prepared weathering the storms. However, having to cope with the ramifications of both Brexit and the pandemic will be a big ask for both small and large businesses alike.

In this article we look at how businesses, with particular focus on the food industry, have been impacted, and the steps that businesses have taken to prepare and navigate in the new and rapidly changing landscape. We provide some customer examples and key tips to consider.

The foodservice industry saw its fair share of misfortune due to the impact of the pandemic.  In fact, in January 2021 many foodservice businesses and hospitality suppliers were reported to be facing a financial “cliff-edge”.  Eighteen food industry trade associations wrote to the Chancellor calling for urgent action to help food manufacturers supplying hospitality and healthcare, highlighting the fact that while pubs, restaurants and cafes have received extended financial support from the government, the businesses that supply them have not.

A recent Business Confidence Survey by research firm CGA, found that The COVID-19 pandemic has wrecked confidence across the hospitality industry, with fewer than one in five (18%) leaders now optimistic about the market’s prospects for the next 12 months (down 42% since February).  Extended restrictions on trading and socialising have led more than a quarter (27%) of multi-site business leaders to predict their groups will be unviable within the first six months of 2021 if current levels of support continue. Single-site businesses are at even greater risk of failure, the survey shows.

However, some industry commentators feel that the UK foodservice sector will recover, despite losing 75 per cent of its income over the last six months. 

Brexit and coronavirus are two shocks that are almost perfectly designed to substantially affect the entire UK economy. Brexit has and will continue to affect most of those sectors that rely on cross-border trade with the EU. Meanwhile, coronavirus has most affected non-tradeable services – those that rely on face-to-face contact. This means that few sectors escape unscathed:  The Institute for Government Insight of Dec 2020 estimated that 69% of the UK economy is “badly” affected by at least one of coronavirus and/or Brexit.   

What does it mean?

Showing great resilience, many businesses in the foodservice sector devoted time and resources to diversify and re-invent themselves with new ways to keep afloat and maintain trade despite the pandemic. This inevitably left them with less time and resources to focus on preparing for the short- and long-term implications of Brexit.

In general, the sectors and businesses most at risk of border disruption are those that import from and export to the EU extensively; this includes food producing and food manufacturing businesses, as well as agriculture. Whilst the full impact of Brexit may take some time to materialise. Short-term, the impacts of are already being felt with delays at borders as traders adapt to new customs and regulatory requirements and new IT systems bed in, not helped by poor trader readiness and late delivery of key border systems. Businesses in the UK and EU will face new rules in areas ranging from VAT and new import/export requirements, to product and food safety standards and there is a real risk of widespread non-compliance or accidentally acting unlawfully if they are unaware of the changes or have not had the time, money, or resources to prepare. Businesses not aware of the plethora of additional forms or border checks required, or failed appoint customs agents to complete those checks, or that have not reviewed their own internal processes, procedures and business management systems in readiness are particularly vulnerable to disruption.

brexit checker tool

The UK government have provided a Brexit Checker website where business can enter their individual trading circumstances and get a personalised list of exactly what they need to do.

containers at a port

Importing goods from the EU

From 1st January 2021 import declarations will have to be completed for all shipments from the EU to Great Britain and duties may have to be paid.

Things to consider:

Do you have an EORI number (Economic Operators Registration & Identification no.)? If not, you should apply for one now via the HM Government site here.

Do you require an EU EORI number? You will need an EORI number from an EU country if your business will be making declarations or getting a customs decision in the EU. Get this from the customs authority in the EU country where you submit your first declaration or request your first decision.

IncoTerms – Have you agreed Incoterms with your EU suppliers, and do you need to set these up against Vendors in your business management or ERP solution? 

Commodity Codes – Have you set up Commodity Codes against Items in your business management or ERP system? Duties will be based on the Commodity Codes of the goods imported, so it will be important to use the correct codes.

Cost & selling prices – Have you reviewed your cost and selling prices to ensure you are accounting for any additional costs incurred by what is now cross-border trading?

VAT Implications:

Do you have any foreign VAT registrations? If yes, in 19 of the 27 EU countries you will need to appoint a VAT Fiscal Representative.

Will you be using the Postponed VAT Accounting scheme? If you do not, and do not have a Duty Deferment Account, then VAT will have to be paid on imports from EU, and subsequently reclaimed in your periodic VAT return. Read more about completing your VAT return to account for import VAT here.

The changes to how you report for VAT on these EU transactions will need to be reflected in your VAT Statement in your financial accounting package, business management solution or ERP system.

Reverse charge VAT will no longer apply for imports from the EU, so you will need to amend your VAT Posting setup.

Do you currently prepare Intrastat reports for imports? If yes, you will need to prepare those reports, though for 2021 only

export import

Exporting goods to the EU

From 1st January 2021 all goods moving between UK and EU will require a customs declaration which should be submitted electronically using the National Export System. If you’re going to do this yourself rather than appointing an agent, you’ll need to register for the National Export System.

Things to consider:

Do you have an EORI number (Economic Operators Registration & Identification no.)? If not, you should apply for one now via the HM Government site here.

Do you require an EU EORI number? As with EU imports, you will need an EORI number from an EU country if your business will be making declarations or getting a customs decision in the EU. Get this from the customs authority in the EU country where you submit your first declaration or request your first decision.

IncoTerms – Have you/do you need to agree Incoterms with your EU customers, and do you need to set these up against Customers in your business management or ERP system.

Commodity Codes – Do you need to set up Commodity Codes against your Items your business management solution? One of the requirements in Customs declarations is the Commodity Codes of the goods exported.

Customs declaration – Do you already have a customs declaration document (a Commercial Invoice), or will you need to produce one from your business management system?

VAT Implications:

Zero-rated EU exports – Most exports to the EU will be zero-rated with effect from 1st January 2021. You will therefore need to amend the VAT Posting setup in your business management system.

Intrastat reports for EU exports – These will not be required from 1st January 2021.

EC Sales List reports – These will not be required from 1st January 2021.

This is where many food businesses who have invested in specialist food-tech solutions to manage their business will have a major benefit.  These changes and requirements can be quickly and efficiently managed and implemented via one-time changes to your business management system, accounting software or supply chain management ERP solutions.

Affinitus has been helping many of our Freshware and Chefserve customers with these changes. Talk to us for more information.

Plant import & Export

Brexit has also brought about changes for horticulture producers.  Any businesses importing or exporting plants will have seen updates to the plant passport system. 

Affinitus’ has been helping our Growmaster users to make one-time simple changes to their nursery management ERP systems to reflect these new requirements.  Contact us for more information.

Open for business sign

Food-tech Business Continuity Options

Referred to earlier, many foodservice businesses have been redeploying and re-focusing their resources to diversify and find new ways to maintain trade and take advantage of the rapid shift in consumer buying habits.  Research by JP Morgan found that E-commerce around the world, across sectors, has surged this year as pandemic-weary consumers looked online for everything from hand sanitizer and groceries to skincare products and cleaning supplies. In the U.S., consumers spent $211.5 billion during the second quarter on e–commerce.  Food and drink giant, Nestlé, said e-commerce grew 49% in the first six months of the year to reach 12.4% of sales compared to 8.5% of sales in 2019. 

Many foodservice and food wholesale businesses opened online customer self-service ordering portals, available to both trade and the public, to alleviate pressure on disbanded or homeworking sales order admin teams and a lack of telesales support.  These portals allow customers to view previous orders, browse favourites, see price promotions and personalised pricing, generate & print invoices, as well as track their deliveries and see proof of delivery information, all without having to speak to representative.  For some small family businesses this has meant giving up their famed personalised customer service and face to face transactions, but these food-tech solutions have provided simple, cost effective and rapidly implemented business continuity options in difficult times.   The information presented via these web portals can be managed at a single source within the business management system, so again, admin resources required to update and maintain are minimal.

Affinitus’ CHEFSERVE solution has been delivering real business benefits for our foodservice clients during Covid-19 pandemic.  Web ordering & shopping cart portals linked to our VANLOGIK delivery application provide vital business continuity options.

Outlook for the food industry

It clear that those food businesses that had the strategic foresight to invest in food-tech or agri-tech solutions will have the advantage over their less well-prepared competitors as we weather this Brexit-covid perfect storm throughout 2021 and beyond.  However, it is also evident that both large and small companies can still make rapid or reactive changes now, by investing in such food-tech solutions to help them continue to trade and compete. These first reactive baby-steps when deciding to implement technology solutions can often lead to a complete digital transformation of the entire business, once the benefits of efficient processes, cost savings, cross company collaboration and accurate business insights are realised.

Affinitus design and develop market-specific ERP business management software to the food service, fresh produce, bakery, meat, horticulture, logistics and warehousing sectors, acting as a long-term strategic IT partner for our customers from implementation and the many years of use that follow.   

Talk to us today – book an informal chat or request more information.