Tesco braces for Brexit by renting frozen food containers

UK’s biggest supermarket group adds to storage space to ease potential disruption

An employee carries a bag of frozen peas as she collects customer orders at a Tesco Plc on-line distribution center, in Erith, U.K., on Wednsday, Nov. 27, 2013. Tesco Plc, the U.K.'s largest retailer, will sell land near some of its Polish hypermarkets to attract additional services around those stores. Photographer: Simon Dawson/Bloomberg

Tesco, the UK’s largest supermarket group, is renting refrigerated containers for the remainder of the year to increase the amount of frozen food it can store and mitigate some of the potential disruption from a disorderly Brexit. A communication from Tesco to store managers seen by the Financial Times states that refrigerated containers used to supplement supermarkets’ existing frozen storage space over the busy Christmas period “are now planned to stay on site for the rest of the year as part of a contingency plan due to Brexit”. It added that the plan “is currently being finalised.” One major supplier of the containers confirmed that Tesco and some other retailers had asked to keep several hundred of the containers, which hold the equivalent of 10 pallets of merchandise each, for at least the rest of the year. “Ordinarily we would have picked them up by now,” the supplier said. Several other suppliers of the containers said they had seen an increase in inquiries relating to Brexit, but that had not yet translated into orders. Tesco, which also retained some temporary storage last year, declined to comment but the company’s chief executive, Dave Lewis, told reporters last week that the company was “working with our suppliers to think through sensible opportunities to improve stockholding closer to the market”. “We’ll utilise the space that we have where that makes sense,” he added. Mr Lewis and other chief executives in the consumer sector have until recently remained tight-lipped about the details of Brexit planning, although some senior figures in the industry have taken part in prime minister’s “town hall” meetings with business figures and made clear their desire for an orderly exit from the EU.

Wm Morrison said it had not hired additional units. Morrison’s supply chain is more vertically integrated than its main UK rivals. J Sainsbury also said it was “not currently holding any extra cold storage”. Additional container storage is only generally viable in larger stores with the requisite parking space. Food retailers would be among the hardest hit of any sector if the UK were to leave the EU at the end of March without a withdrawal agreement. Roughly a third of the UK’s food is imported from the EU, including large amounts of fresh produce, and the British Retail Consortium has previously warned of “food rotting at ports” if a no-deal Brexit results in additional customs checks. In a letter to the prime minister and the EU last year, it said frictionless trade allows soft fruit to arrive in the UK and still have a shelf life of about five days. Although Marks and Spencer and Tesco have recently said they are stockpiling some tinned and packeted items with longer shelf lives, retailers have repeatedly told government ministers and civil servants that substantial additional storage capacity is impractical. Without further inward deliveries, many regional distribution centres can only supply their store networks for about a week. Analysts at Credit Suisse estimated last year that a hard Brexit could increase the wholesale cost of food by more than 5 per cent; this included estimated costs for tariffs, non-tariff barriers, additional labour and a weaker currency. Given their already-thin margins, the analysts said retailers would be forced to pass on at least some of the additional costs to customers in the form of higher prices.

Source : www.ft.com 

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