Business and finance 22 August 2019 “Just another item on our to-do list”: The popcorn maker’s Brexit business diary In the first of our inside stories from British businesses, the founder of a popcorn manufacturer takes us through his no-deal prep. Joe & Seph's Corning signs. Sign UpGet the New Statesman\'s Morning Call email. Sign-up Along with his parents and brother, Adam Sopher is a co-founder and director of Joe & Seph’s, which has been making gourmet popcorn – with flavours ranging from goats cheese and black pepper to gin and tonic to Marmite – since 2010. Based in Park Royal, London, all its manufacturing takes place in the UK. There are 50 employees, who mainly make, pack and warehouse the food. A third are EU citizens from outside the UK. Joe & Seph’s biggest market is the UK, but it also exports to 19 countries – around 30 per cent of its sales go overseas, of which half are to the EU and half not. 20 February 2016: David Cameron confirms EU referendum for June For any business, uncertainty isn’t helpful. Regardless of your political views or tendencies, I think as a business all we wanted was certainty, whichever way the vote was to go. We do export a lot of our product to Europe, and the uncertainty of whether there’ll be any restrictions on that, the cost of doing so, etc, obviously doesn’t help when you’re trying to convince European retailers to buy from you, and not source a product from elsewhere in Europe. It’s all manageable but it’s not particularly helpful when, as a fast-growing business, a young business, we don’t have a huge team – we don’t have anyone who knows anything about customs regulations or any of this sort of stuff. To set aside my time, or our operations team’s time, to do that is time that could be better spent on selling popcorn or growing the business. 23 June 2016: Britain votes to leave the EU We were surprised – and certainly that made us think for the first time really what Brexit would mean for our business. Prior to that it was politics, it wasn’t necessarily real for us. And I think at that point, we went, “well, hold on a second, what is this going to mean?” And then as we realised quite how protracted it was going to be and how no one really had any answers, we just had to wait and see. There’s no point us investing resource or money in trying to figure out an answer to something where we don’t even know what the situation is yet. 8 June 2017: Theresa May calls a snap election and loses her majority There was no concrete plan and timeline, and so it just sort of sinks down the priority list – it slips because you’ve got to focus on the things that are real and tangible, which could be a customer in Germany wanting to buy your product, or a new innovation, or needing to hire more people, or we need to buy some more machinery: these are the sort of day to day things that are really important that drive a small business. And something that may or may not be real just can’t sit as a priority. January 2019: May’s fight to get her deal through parliament ahead of 29 March begins In the run-up to March, we built stocks because what we were seeing were our customers going, “Just to be clear, guys, we expect continuity of supply from you, regardless of the result of what goes on over the next few weeks”. We can’t let our customers down – the one thing we’ve got as a small business is our relationship with our customers, and if we damage those, we don’t have a business. So we mitigated anything we could mitigate in the event that we did leave in March, and primarily we built stocks of packaging and raw materials – they were our main activities. For example, cacao that gets grown in Colombia, or vanilla from Madagascar, which are key ingredients in some of our popcorn flavours and can't be grown in the UK. Some of that is [from the] EU and some isn’t. Our packaging is all manufactured in the UK, but actually the ultimate raw material is often made in China and then assembled in the UK – tin, etc. We wanted to get certainty that if there were customs delays our stuff didn't get stuck in it. But as a small business, we can’t afford to tie up our limited cash in stock that’s just sat in a warehouse – that cash is needed to grow the business. Cash flow is tight, it always is. And so we did enough, I would say, but we didn’t do so much that we were going to tie up cash and not focus it on other activities. April 2019: Brexit is delayed The second the March date was moved, like all businesses, we just released all of that stock as quickly as we could so that we could focus our cash on things that were actually more important. So I would say most of that was exhausted by June, probably. The fresh ingredients were used almost instantly – for example, butter. 23 July 2019: Boris Johnson elected Tory leader, and therefore the next prime minister It took until Boris was voted in, to say, “Okay, hold on a second, we need to start doing this process again,” and I would say probably it’s only the last two weeks that we’ve really focused on it and started repeating the process that we did for March. We’re now actually focusing on more areas. So while in March we just focused on packaging and raw materials, now I would say we’re taking it more seriously because I think no deal wasn’t so much an option back in March. Now we’re having to think if it is no deal what does that mean in terms of all of our exports that go to Europe? They might not get there, so what can we do to mitigate those? And so we’re looking at, for example, warehousing in mainland Europe, where we can ship our products over in bigger volume, deal with one customs delay, and then fork it from that warehouse to multiple locations in Europe as and when we need it, as opposed to being stuck – so instead of making, say, 100 deliveries, we’re going to make one to Europe, and then those other 99 deliveries within Europe. Today We’re not ready yet, but we will be. We’ve got a few more weeks trying to figure it out, how that might work in practice. The future If it does go to no deal, there will be a negative and positive impact. There’s a challenge over getting our product to European markets and getting it there on time so that we don’t let our customers down – if we did that we’d lose those listings. And there’s a challenge in terms of getting raw materials into the UK in a cost-effective way. The upside, though, is if it does go to no deal the pound will be even weaker and what that will mean is our exports should increase quite considerably. While at the moment, for example, a bag of our popcorn might sell in Europe for €4, if actually the pound gets to parity, we might actually be able to get it on the shelves for €3, and that improvement in price will mean that we can sell a lot more popcorn in those countries, which might mitigate some of those issues that we’ve just talked about. We’re about to launch into the US. If we were looking at the US market two years ago, a year ago, we’d be talking about an exchange rate of 1.5 to the pound. We’re now running at 1.21. So what’s that? A 20 per cent, 15 per cent improvement in the pricing we can offer our US customers than where we were a year and a half ago. So that’s really exciting. Hopefully we’ll see success in markets that weren’t, because of the strength of the pound, potential options before. So it’s quite unclear as to whether the positives can outweigh the negatives or the negatives can outweigh the positives. It’s a real unknown. …and if there’s a recession? We launched the business in a recession. People nicknamed the category of product we had “affordable indulgence” – we found that actually when there is doom and gloom people tend to indulge more on things that are quite affordable. For such a huge change for our country, sadly, as a small business, I think the best way to describe it is another item on our list of to-dos right now. As told to Anoosh Chakelian. > This piece is from our Know Your No Deal series on the different ways a no-deal Brexit will impact the UK › Five things you need to know today: Johnson to meet Macron after Brexit demands rejected Subscribe For the latest TV, art, films and book reviews subscribe for just £1 per month!