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IRISH INDEPENDENT: Cost of ‘practically everything’ rising Inflation, Brexit fallout and changed shopping habits are squeezing margins at East Coast Bakehouse, says managing director Sean Murphy

April 27, 2021 Profiles and Interview

Link to original article: https://www.independent.ie/business/brexit/cost-of-practically-everything-rising-40359452.html

Cost of ‘practically everything’ rising

Inflation, Brexit fallout and changed shopping habits are squeezing margins at East Coast Bakehouse, says managing director Sean Murphy

Irish Independent

The combined effects of Brexit and the pandemic are driving up costs and hitting margins, according to the managing director of biscuit maker East Coast Bakehouse, Sean Murphy.

“We have inflation on practically everything we use at the moment, which is obviously squeezing our margins and [we are] having some difficult conversations with customers,” said Mr Murphy.

Located in Drogheda, Co Louth, 30pc of the biscuits and cookies it produces are for its own brand. The remaining 70pc of its produce is sold as private label to grocery retailers.

Its customers include supermarket giants Lidl, SuperValu, and Dunnes Stores.

At the start of the pandemic, the company benefitted as shoppers engaged in panic buying of groceries.

However, by the middle of 2020 “we found it quite difficult to engage buyers and get them to take on new business”, Mr Murphy said.

“Our business relies on growth and therefore the delay of getting that new business made it quite difficult for us in terms of getting growth into the business and getting ourselves to a more financially secure place.”

Towards the end of last year things improved, as businesses and consumers became used to life under Covid restrictions.

“We have seen buyers and other brand owners be a lot more open and engaged as they look to grow their own businesses… across quarter four last year and into this year a lot more new business has come onboard and [there has been] a big step up in terms of discussions with potential customers,” he said.

Meanwhile, Brexit has hit the price competitiveness of Irish producers versus UK rivals and disrupted supply chains.

When the UK voted to leave the European Union in 2016, East Coast Bakehouse’s factory was being commissioned.

“This plant was designed to primarily service [the] UK and Ireland, and of course the pound went from being 75-80 pence to the euro to 90 or 95 or almost parity, so our competitiveness was significantly disrupted.”

Agreement on trade between the UK and the EU was reached at the end of last year.

Since then the pound has started to strengthen against the euro, which has been good for Irish companies that do business in the UK.

Nonetheless, Mr Murphy says the increase in the value of the British pound “needs to go a long way yet”.

In terms of sending produce to the UK, the company was well-prepared and has “not had any significant disruption of goods going into the UK”, according to Mr Murphy, however, he says it is “more challenging”.

A bigger issue has come from getting raw materials into Ireland.

“European suppliers, I don’t think really understood that a landbridge was going to be an issue and they were sending products via the UK still,” Mr Murphy said.

“We had one case where one of our nuts deliveries was tied up in Dublin Port for three weeks because the right documentation wasn’t in place, and that product had come out of Europe. And some of the UK suppliers really didn’t know what documentation was required.”

So far this year, the company has had “a lot more engagement” from retailers around the possibility of East Coast Bakehouse supplying supermarkets with more products.

“We have got a couple of live conversations at the moment, that’s us contract manufacturing their brand. That, I believe, is driven by simplifying supply chains…the likes of Tesco are looking at bringing more of their private label [production] onto the island of Ireland to simplify their supply chains, which is a good opportunity for us,” Mr Murphy said.

Meanwhile, just over a quarter of small and medium businesses (SMEs) in the food sector here say the UK remains their most important market.

Research from Love Irish Food and PwC found almost 70pc  of food SMEs say the Republic remains their most important territory for growth.

Of 68 firms surveyed, 24pc said that more than one-fifth of their company’s revenues this year will come from trade with the UK compared to 19pc in 2019.

Sean Murphy says East Coast Bakehouse has “a really positive pipeline”.

“We are in a much better position than we were this time last year. There are two drivers of that, one is we have improved our own capabilities and the second is now the new world is a lot more obvious to people, everyone is starting to refocus on driving growth.”

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