Dive Brief:
- Mondelez anticipates supply chain and economic disruptions in the event of a no-deal Brexit, including tariffs, customs challenges, materials shortages and a significant devaluation of the British pound, executives said on the company's Q2 earnings call.
- CEO Dirk Van de Put said Mondelez put mitigation plans in place in anticipation of the original March 2019 deadline. In Q1, "[we] increased the level of raw materials we have in the country. We increased the number of warehousing space we have for finished products. We contract[ed] more distribution trucks," he said. "We are ready to keep our products in distribution no matter what."
- Van de Put said disruptions resulting from a no-deal Brexit would likely lead to changes in pricing and sourcing but emphasized the exact changes are difficult to predict at this time.
Dive Insight:
According to a statement before the U.K. Parliament’s Exiting the European Union Committee from U.K. Food and Drink Federation COO Tim Rycroft, "We don’t have enough milk powder processing capability in this country and that goes into a lot of products like confectionary and infant formula ... We don’t grow enough high protein wheat in this country, we tend to rely on a lot of imported wheat for bread." He continued to say the shortages would begin taking effect within two weeks of a no-deal Brexit and go on for months afterward.
Shortages of these inputs would affect Mondelez and other food and snack firms, as Van de Put said on the call, but he emphasized the unpredictability of the situation makes it difficult to forecast the impact on Mondelez's supply chain. After Boris Johnson was named the U.K.'s Prime Minister earlier this month, analyst predictions of a no-deal Brexit by the Oct. 31 deadline have increased, but the situation is still in flux.
In spite of this, Van de Put expressed confidence that the company would have the capacity to continue supplying its "powerhouse" U.K. market.
The company's longer-term concern is what tariffs, currency devaluation and consumer concerns could do to the U.K. economy in a no-deal future. While Mondelez can ride out the near-term effects and hedge against negative supply chain impacts, executives said preparing for, and mitigating, the impact of a national economic slowdown would be far more difficult.
