UK: Edrington-Beam Suntory UK slams cost of Brexit stockpiling

One of the UK’s biggest distributors of premium spirits has revealed it has had to significantly increase its investment in stock sourced from the European Union in anticipation of a hard Brexit, as its boss hit out at the distraction caused by political wrangling at a crucial time of the year, the Herald Scotland reported on December 24.

Glasgow-based Edrington-Beam Suntory UK, whose portfolio includes The Famous Grouse, The Macallan and Jim Beam, has been ramping up inventories of drinks such as Courvoisier Cognac from France to ensure it will have up to six months of stock in place after the UK’s scheduled departure from the EU on March 29. It is making the investment to ensure supplies to UK bars, supermarkets and restaurants are not interrupted by a no-deal Brexit.

Managing director Mark Riley declined to say how much the distributor, owned equally by Edrington and Beam Suntory, is investing in Brexit stockpiling. However he said the company usually imports the spirits it requires from the EU on a “just in time basis”, suggesting it has hiked its investment in stock significantly.

Mr Riley, who has worked in the drinks industry for 21 years, said: “The main frustrations are the whole uncertainty. At this time of year, our focus should be on executing all of our seasonal plans with our key customers, and also planning for an exciting growth agenda for next year.

“But, as well as that, too many people are being distracted by contingency planning for all kinds of Brexits – hard, soft and anywhere in between.

“And when you are taking some of your smartest people away from your core focus, the results are your plans are not going to be as sharp, they are are not going to be as progressive, they are not going to be as dynamic next year as they otherwise could be.”

He added: “Brands being imported in from the EU, such as Courvoisier, are directly impacted. The indirect effects may also be felt by locally produced brands that have a production supply chain that reaches into the EU and potentially beyond.”

Mr Riley said Brexit has already had a big impact on the distributor, with the collapse in sterling following the leave vote in 2016 costing it “an awful lot of money” by pushing up imports costs.

He added: “Whether it is Brexit or tariffs, there is just huge amount of uncertainty which is adding cost and complication to our business.

“It ultimately means we are not focusing on the stuff which really makes a difference – building talent, building brands and building customer relationships.”

Asked how the company could practically prepare for Brexit, given that there continues to be no clarity on the outcome, Mr Riley said it was planning on a “worst case scenario”, which would be a hard or disorderly Brexit.

While it has taken steps to build flexibility into its business processing systems, he underlined that the biggest cost implication has been on upping stock levels to overcome any “friction” which may arise at borders following the UK’s withdrawal.

Mr Riley said it is taking steps to ensure it has three to six months’ supply from the end of March, “just to make sure”.

He added: “Premium spirits are not cheap products. The cost of that is remarkable.”

As well as the extra cost, Mr Riley pointed out that the move to stockpile was putting pressure on warehousing in the UK, as so many other businesses are making similar preparations.

He explained: “Getting product in doesn’t sound so bad, because the product is available.

“The problem is warehousing, trucks, drivers. It’s not until you get into the detail that you understand what the logistical challenges are. There is just not enough warehouse space in the UK for all products to be stock-built for three to six months.

“There’s not enough drivers, there’s not enough trucks because the supply chain has been refined over the last 20 years to work on a just in time basis.”

Less tangibly, he added that the company is also dealing with the “fear of the unknown”, which is distracting staff from their day jobs.

Mr Riley, who was appointed to his current role in 2015, said: “You have constantly got to reassure your team.

“All we can do is control our controllables (sic), build stocks, keep our ear to the ground and work with trade bodies like the WSTA (Wine & Spirit Trade Association) to make sure we have got the most contemporary information.”

Edrington-Beam Suntory UK emerged from the drinks distribution business known as Maxxium UK, which was based in Stirling.

The company, which employs 125 staff, officially took on its new name in April, which was followed by the move of its head office from Stirling to Glasgow city centre.

Despite the disruption caused by Brexit, Mr Riley said the company is trading well, declaring that it has been outperforming the market for the last two to three years.

He credits this to strong demand for high quality premium spirits from UK consumers, stating that the explosive growth of gin is showing no sign of slowing down.

The most recent accounts for the firm, for the year ended March 31, revealed a pre-tax profit of £5.04 million, down from just over £5.5m. Turnover dipped to £216.6 mln from £222.9 mln.

25 December, 2018