Ed’s view: Pound parity problems

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With the Sterling exchange rate consistently threatening to reach parity with the Euro, as well as closing the gap with the US Dollar, this poses a few questions for the UK catering equipment supply chain.

The small band of UK foodservice appliance manufacturers may be rubbing their hands in glee, as more export markets open up, with international customers keen to take advantage of favourable currency conditions and get more ‘bang for their buck’.

But in the UK catering equipment market, the vast majority of kit is imported: from mainland Europe, the USA, or an increasing number of Far East sources. So while a positive long-term goal could be to grow the British manufacturing presence to mitigate this, it unfortunately doesn’t help the situation here and now.

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Talking to some importers this month has shown that many have headed off any immediate issues by buying currency in advance to take advantage of a better performing Pound, but this both relies on a certain amount of liquidity, which is not always possible for companies to obtain, and is only a temporary fix if rates continue to be driven down. At some point they will likely have to buy at a lower Sterling rate, unless this imminently goes rocketing sky high. And with the political and economic uncertainty we are currently facing, personally I can’t see that happening any time soon.

So then suppliers face the stark choice between absorbing the difference in costs, or passing these onto dealers in the form of surcharges or permanent price rises.

I know what many distributors would say at this point – suppliers always increase prices but never reduce them when the Pound bounces back or other market conditions mean that more profits are generated. I see both sides here – if suppliers believe that their dealer customers have accepted a price rise, then they are unlikely to revert to previous levels, and there are few salespeople who would then volunteer to reduce their revenue-generating opportunities.

But dealers themselves are being squeezed from both directions in the supply chain, as it is proving difficult to get end users to accept higher project quotes.

Both distributors and suppliers then have to decide whether they want to risk losing a sale by charging higher prices, or slice their margins to ribbons but keep their orderbook ticking over. Really it was ever thus. It all comes down to which stage of the supply chain has the most competition pressures.

But to prevent a continuing race to the bottom, someone somewhere will have to stand up and say that it’s just not possible to operate on a single digit margin – not for a sustainable, long term anyway. There are several market casualties in recent years which have proved that case. The question is, who’s going to crack first?

Tags : Editor's Viewexchange rateexchange ratesopinionpricing
Clare Nicholls

The author Clare Nicholls

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