How Brexit is making chocolate more expensive (and what that means for British business as a whole)
05 October 2016 -
Brits have had a long love affair with chocolate, and niche brands selling specialist products have been growing in popularity in recent years. Hear from Helen Pattinson, co-founder and director of Chichester-based Montezuma's Chocolates, about how Brexit has affected her business
It’s not surprising that the increased price of cocoa has gone largely unremarked in the post-Brexit debates. Yet Brits are among the world’s biggest consumers of chocolate.
The increased price of cocoa in the weeks after the EU referendum vote will undoubtedly have to be passed on to consumers, according to Helen Pattison, who co-founded Montezuma’s Chocolates in 2000 with her husband Simon.
“The product is priced in euros and we buy in sterling, which means that the product has become more expensive since Brexit,” explains Pattison. But that’s not all: “Cocoa, like other physical products such as coffee and gold, is traded on the commodities market and these products have gone up since Brexit because investors have a lot more confidence in physical investments.”
And with an eye to increased currency cost exposure, she points out: “We also use European processing houses to extract the raw chocolate.”
Montezuma is not alone, of course. The pound’s post-Brexit fall in value has hurt many food firms, according to Food and Drink Exporters Association director John Whitehead, speaking a couple of weeks after the vote.
Were you prepared for Brexit?
Montezuma’s Pattinson, who was a lawyer prior to becoming a confectionary entrepreneur, admits she was not prepared for the spike in cost of her prime ingredient, any more than she had planned for the Brexit result itself.
“I did not expect the UK to vote Leave,” she says, doubtless echoing the thoughts of many SME directors. “It was a shock when I woke up on the Friday morning to find out that it had happened.
“Like a lot of SMEs, however, you deal with what is thrown at you. We have no control over external events. SMEs are nimble, small and are able to adapt. But it has been very hard and painful to put our prices up.”
The entrepreneur says that she has been on the phone explaining the price rises to her customers. Montezuma's Chocolates sells to Sainsbury’s, Waitrose, John Lewis, Selfridges as well as Liberty and has its own retail outlets.
She says: “Originally we were going to absorb the costs of the cocoa into our profit margin. But as the costs of our raw materials have continued to increase we decided that we needed to increase our prices.
“We have been talking to all our customers about the price increases. Nevertheless, we will always deliver the best ethically sourced quality chocolate products.”
The rising cost of cocoa means that the management at Montezuma, which employs 150 people and has a turnover of £8 million, has decided to curb expansion plans on the high street. “We were going to open two new stores,” explains Pattinson, who confirms those plans are currently on ice, though not wholly as a result of the EU vote.
“It is also because the high street has its own issues with diminishing footfall and the growth of internet shopping,” she says. “The capital investment is too high for us to commit right now.”
The future – grow international sales
“Chocolate is a fabulous product and even during the economic crisis in 2008 our loyal customers still bought the product”, said Pattinson. “I would be concerned if cocoa prices continue to go up because it has been a struggle to increase prices to our loyal customers.
“That is a big concern for the future.”
Having passed on higher prices to her customers and accepted a slimmer margin to boot, Pattinson now aims to broaden her market opportunities to drive growth in business.
The company is planning to increase sales to Europe to help iron out some of the currency issues caused by the decrease in value of the pound. In the past few weeks the company has had enquiries from big distributors in France and Germany.
Pattinson concludes: “I am a positive person – which is why I didn’t think that Brexit would happen – and I do think that this could create opportunities to grow into different markets like the US, Middle East and Europe.”
Jeremy Cook, Chief Economist for currency broker World First, adds that the focus for UK SMEs should be to implement a ‘fix-it’ currency strategy and protect themselves from any future volatility.
He says: “It is still early days and neither the full economic or political impact of Brexit has truly been felt yet. For the most part, SMEs seem to be remaining resolute although we have spoken to clients who are suspending investment decisions given increased costs or uncertainty.”
Matt James is from currency broker World First
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