Food & drink

Cost increases on the horizon in April for the pub and restaurant industry
21 March, 2018

March and April bring the end of the financial year and tax year forincrease many companies, but this April will also bring more costs increases for the pub and restaurant industry.

The news in the first few months of 2018 has been rife with numerous restaurant closures. Prezzo has announced the closure of 94 of its restaurants. This follows closures of other well-known chains such as Byron, Strada and Jamie’s Italian. Jamie’s Italian in particular, in keeping some of the premises open, has had to negotiate rent cuts and a change in frequency of rent payments. This kind of scenario means that landlords will also suffer if they decide to keep a reputable brand in their premises in the hope that business will pick up and rent increases can be negotiated in the future.

It is not just well-known chains but also high profile restaurants in London that are closing. An online log is being kept by Eater London of the ongoing closures showing the volume there has been in such a short space of time.

Rents are continuing to increase partly as a result of Brexit. Brexit has caused the pound to weaken which is creating issues with many ingredients being sourced from overseas. Brexit has also meant that some European staff are leaving, increasing recruitment costs.  Business rates are also due to increase which is a major expense for pubs and restaurants.

The national minimum wage is set to rise again in April. Pubs and restaurants will have to find ways to alleviate these growing costs as another rise is expected for next April.

The sugar tax, due to be brought in April to help tackle obesity in the UK, also looms and is a concern to those in the food and drink industry.  The outspoken owner of Wetherspoons has not been shy in voicing his concerns. The company believes it will increase their tax bill by £3 million. We have already seen the company increase its prices for the third time in the space of a year. There may be more once the impact of the sugar tax starts to become clear. Suppliers and food distributors will have to adjust their pricing strategy and most likely increase prices.  There will be a noticeable rise in the cost of fizzy drinks for example.

However, it is not all doom and gloom. The British public is continuing to eat out. Statistics show that sales increased by 0.2% in February compared to February 2017 and the frequency of eating out has not dropped. Pubs fared better than restaurants with their growth being 4.3% compared to 3.8% for restaurants. That said, companies need to look at strategies to mitigate the increasing costs. Where possible, negotiating lower rents at the outset will have a major effect with this being one of the largest expenses.


Fresh produce left rotting as migrant workers vote to leave the UK
16 February, 2018

The uncertainty over Brexit, and in particular the UK’s stance over immigration, is impacting on the supply of seasonal migrant labour to fresh produce farms, resulting in financial losses, food waste, and disinvestment in UK agriculture.

During September 2017, UK farmers reported a shortfall in labour of up to 29% which, for apple grower Stocks Farm, resulted in a monthly loss of £30,000. By comparison, in May 2016 – prior to the Brexit referendum – there was a shortage in labour of 4%. Seasonal job vacancies are on the rise for 2018 and farmers across the country predict that they will be unable to cope with harvesting and production demands.

According to the director of a major agricultural recruitment company, the shortfall in seasonal workers is due to Brexit. The government’s decision to leave the European Union, and its pledge to reduce immigration, has caused migrant workers to perceive the UK as “racist” and “xenophobic”. The effect is exacerbated by the weak pound, making earnings in the UK less attractive to eastern Europeans.

The UK is heavily dependant on foreign fruit pickers. Of the 80,000 seasonal workers required by producers in the UK, more than 99% are recruited from Eastern Europe. Low unemployment rates and a desire to have long term employment contracts mean that it is difficult for farmers to employ domestic workers.

Facing uncertainty over the labour supply and as a result incurring extra costs, some companies have been forced to move production overseas. For example, Haygrove farm – one of the UK’s largest growers of berries with a turnover of £101m – has relocated its raspberry and blueberry production to China because of a 20% fall in demand for seasonal jobs.

In response to the labour pressures, the National Farmers Union has urged the government to reinstate a seasonal agricultural workers scheme (“SAWS”) which would help sustain a regular source of seasonal workers entering the UK. However, the government is reluctant to commit to such a scheme, citing a lack of evidence of any issue and the need to prioritise Brexit negotiations.

Businesses relying on migrant workers should keep an eye out for the government’s immigration policy expected later this year which will hopefully address some areas of concern. However, this remains to be seen and alongside eastern Europeans’ alleged perceptions’ of racism in the UK, businesses may need to consider alternative commercial decisions to mitigate short and long term damage.


The Groceries Code
6 February, 2018

Do you supply products to supermarkets?  If so, it’s important you understand your rights under The Groceries (Supply Chain Practices) Market Investigation Order 2009 (Groceries Code).  It is intended to help level the playing field between large supermarkets by protecting suppliers from being put under unfair commercial pressure.  The key points to consider are set out below and a copy of the Groceries Code is available here.

Which supermarkets must comply?

The Groceries Code applies to the following supermarkets and their subsidiaries (Designated Retailers):

1              Asda Stores Limited

2              Co-operative Group Limited

3              Marks & Spencer plc

4              Wm Morrison Supermarkets plc

5              J Sainsbury plc

 

6              Tesco plc

7              Waitrose Limited

8              Aldi Stores Limited

9              Iceland Foods Limited

10           Lidl UK GmbH

Other retailers may be added to this list by the Office of Fair Trading (OFT) where their turnover exceeds £1 billion with respect to the supply of groceries within the UK.

Obligations of the Designated Retailers

The Groceries Code requires the Designated Retailers to incorporate the code in agreements with suppliers, which should be recorded in writing and provided to the supplier along with their terms and conditions.  In addition, the Designated Retailer should inform the supplier of their rights under the Groceries Code, including their right to complain to the Grocery Supply Code Ombudsman (Ombudsman).

Terms of Supply

Designated Retailers are required to deal with their suppliers fairly and lawfully, without duress and in recognition of their need for certainty of the terms of supply, particularly in relation to production, delivery and payment issues.  Restrictions are placed on the retailer’s ability to charge for items such as marketing costs, payments for stocking, shrinkage, wastage, forecasting errors, promotions or unjustified payments for consumer complaints.

De-Listing

A Designated Retailer may only de-list a supplier for genuine commercial reasons.  A supplier should not be de-listed for exercising its rights under the Groceries Code, or as a result of the failure of the retailer to comply with its obligations.  Prior to de-listing, the retailer should give written notice to the supplier providing reasons for termination.  The notice period should allow sufficient time for the supplier to have the decision reviewed by a senior buyer and attend an interview with their code compliance officer.

Dispute Resolution

A Designated Retailer must negotiate in good faith with a supplier to resolve any dispute arising under the code.  If a dispute arises and this cannot be resolved through dialogue, the supplier may notify the retailer’s code compliance officer that they wish to initiate a dispute resolution procedure.  After this notice is given, the parties have 21 days to resolve the dispute and if it is not resolved then the supplier may refer the matter to the Ombudsman for arbitration.  The costs of the Ombudsman will be paid by the Designated Retailer unless it is decided that the claim was vexatious or wholly without merit.

If you would like further advice, please contact Tom Bourne on 01892 506099 or tom.bourne@cripps.co.uk to discuss your situation.


What does Brexit mean for UK farming?
23 January, 2018

Contributing almost £30 billion a year to the economy, food andfarming drink is the UK’s largest manufacturing sector.  Farming, more specifically, is crucial to the food industry.  It contributes approximately £9 billion to the UK economy, provides almost 4 million jobs, supplies over 60% of the food that is consumed in the UK, offers important cultural and social services, and plays a vital role in managing the environment such as maintaining landscapes and providing wildlife habitats.

As such, farming regulations and policies must consider the role that farming plays in the wider food industry and must have regard for how changes in those policies can impact the wider economy.  Currently, the UK remains a part of the EU Common Agricultural Policy (CAP), part of which provides subsidies which provide significant support to gross farm income.  Given the importance of farming to the UK’s food industry, abolishing the EU CAP system following Britain’s departure from the EU without offering an effective and sustainable new regime could, some experts report, prove a real threat to food security in the UK.  

The situation post Brexit

The Environmental Secretary, Michael Gove, recently announced details surrounding the government’s plans for farming subsidies post Brexit and the withdrawal of the UK from the EU CAP.  Gove is critical of the current system and some existing UK tax breaks which he views as flawed.  Both, it is asserted, inflate the value of agricultural land which creates obstacles for farming enterprises and compromises profitability and competitiveness in world terms.  In his announcement, he indicated a shift towards what he believes will be a more efficient system that puts public money towards “public goods”.  Reassuringly for farmers who currently rely on the subsidies, Gove intends that farmers will continue to receive the payments under the current regime until 2022, possibly until 2024, as part of a transitional phase into the new regime, subject to capping for the largest eligible farms.  This period, Gove hopes, will provide some clarity and encouragement for farmers who may need to adapt their business models in order to ensure they benefit from the incoming regime, and provide a softer landing for subsidy-free farming enterprises in the years ahead.Brexit

That regime, Gove indicates, will instead ensure that subsidy payments depend on farmers offering “public goods” and will end the “unjust and inefficient” subsidies made under the current EU system.  Payments will instead attempt to reward business efficiency and the money will only be granted in order to pay for goods in the public interest such as for the protection of the countryside, the enhancement of the natural environment and for increasing biodiversity. 

The impact of the incoming policies

Any new farm subsidy regime must ensure that UK farmers are not undermined and their interests protected.  Of course, Gove has confidence in the government’s plans and the impact they will have on UK farmers.  Vocal support and lobbying from sector stakeholders (including CLA, NFU and many others) will seek to ensure a fair and balanced system for taxpayers and farmers alike – but the wind direction is certainly in the medium to long term towards breaking away from subsidies altogether, and ensuring free market forces operate in UK agriculture.

The only certainty regarding the impact of the new regime on farming and the food industry is that it is simply too soon to tell.


What should you do if food safety concerns arise about your products?
11 January, 2018

The EU’s General Food Law Regulation (GFL) prohibits unsafe foodFood Safety

being placed on the market.  In addition to public health concerns and potential liability to end consumers, substantial fines can be imposed if this legislation is breached and it’s important to have a contingency plan in case any food safety concerns are raised.

Is my food fit for consumption?

Food is defined in the legislation as anything intended to be, or reasonably expected to be, ingested by humans.  This includes drinks and other food supplements. 

Food is deemed unsafe when it is injurious to health and/or unfit for human consumption.  This extends to food contaminated during preparation, the presence of foreign objects and/or unpleasant tastes due to food rotting.  Food is not considered unsafe simply because certain people may be injured by it as a result of an allergy or intolerance (although note the requirements for products to be properly labelled).

Like most things prevention is better than cure, so it’s important to regularly update your HACCP (Hazard Analysis and Critical Control Point) analysis to minimise this risk. 

What happens if food is found to be unsafe?

The purpose of the GFL is to protect the general public’s health.  It has a wide scope and covers almost all instances where food is supplied, including where it is free of charge.  In light of this, if an objective assessment reveals that a food company has supplied unsafe food, it must take steps to withdraw or recall the non-compliant food.

Recalling/withdrawing food

If the unsafe food has not yet reached the consumer, it should be withdrawn from the market.  Where food has already reached the consumer, it should be recalled.  The food company should also provide the consumer with reasons why any withdraw or recall was necessary.  

Notifying relevant authorities

Although it may cause reputational damage, there are serious consequences for businesses who do not report instances where they supplied unsafe food.  Under the GFL, food businesses have an obligation to report breaches to their local authority and also to the Food Standards Agency.  Where there is an obligation to notify the relevant authorities, it must be done immediately if the food is considered injurious to health.  It is therefore important to investigate matters quickly and notify any concerns as quickly as possible.

Food companies should also consider whether they have any contractual obligation to notify an insurer about a food recall or withdrawal.

Summary

The penalties for breaching food laws can be significant and you should have contingency plans in place to deal with any food safety concerns.  Any breaches should be notified immediately and significant fines can be imposed where this is not done.  A recent example is where Cadbury was fined £1m, in addition to £152,000 in costs, for putting unsafe food on the market and failing to notify the relevant authorities that chocolate had to be recalled.

If you would like further advice, please contact Tom Bourne on 01892 506099 or tom.bourne@cripps.co.uk to discuss your situation.


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