How Brexit is impacting the UK coffee and hospitality industry

Graphic by Mike Stonelake

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An historic victory for free trade and sovereignty or colossal act of economic self-sabotage? What Brexit means for the UK and how it’s going remains contentious. As the dust settles from years of intense negotiations, UK coffee and hospitality businesses face a very different economic landscape following the loss of free movement and access to the Single Market and Customs Union.

Few could have predicted that following the 2016 referendum the UK hospitality industry would face a global pandemic and the economic shockwaves from Russia’s war in Ukraine. “The difficulty is to extricate the major factors of Brexit and Covid,” says Tony Sophoclides, Strategic Affairs Director at UKHospitality, a trade body representing more than 100,000 venues in the UK. Sophoclides observes that hospitality businesses have been among the UK economy’s hardest hit by high inflation, of which there are several causes.

The pandemic brought significant disruption to global commerce that is still resonating today with higher shipping costs and delays. Meanwhile, the cessation of Russian gas imports to Europe caused wholesale energy prices to spike 500% in 2022 and they remain around 50% higher than at the start of 2021.
 

“Whether it’s Brexit, Covid or train strikes, UK business have become very resilient”
Stephen Fern, Managing Director, 200 Degrees

Nevertheless, the ramifications of upending more than half a century of closer integration with the UK’s closest trading partners are becoming clearer. At a time when many venues have no alternative but to raise prices, there is growing evidence that Brexit has contributed to the wider drag on disposable incomes during the cost-of-living crisis.

In 2016, the Remain campaign warned that UK households would be up to £4,300 worse off per year after Brexit, while Vote Leave countered Britons would be £400-£933 better off.

“We have taken back control of our laws and our destiny,” said then prime minister Boris Johnson in December 2020 as he heralded a “new era of prosperity” following Brexit.

Since then, 2023 research by the National Institute for Social and Economic Research estimates Brexit has cost the average British household £850 a year. Another report by Cambridge Econometrics in 2024 suggested the UK economy is now £140bn smaller than if it had opted to remain in the EU Customs Union and Single Market with a ‘soft’ Brexit deal.

These statistics point to a further softening of consumer confidence against the backdrop of high inflation and the cost-of-living crisis. While coffee and hospitality businesses have proven remarkably resilient in the face of multiple challenges, there is a sense that Brexit left the UK economy more vulnerable to external shocks. “In the short term that has demonstrably been the case,” says Sophoclides. “It was a very big change of operating environment for businesses and households.”
 

“The recruitment challenges hospitality businesses face are not primarily related to Brexit”
David Abrahamovitch, Founder & CEO, Grind

Brexit has also played a role in the hospitality staff crisis. A report carried out by Oxford University’s Migration Observatory shows that the number of EU employees working in the British hospitality sector fell 25% between June 2019 and June 2021. That significant decline proved a major headache for many operators reliant on EU workers. Notably, in 2017 London-based Pret A Manger revealed that 65% of its workforce were from the EU and that just one in 50 job applicants was British.

According to Jonathan Morris, a Research Professor in History at the University of Hertfordshire and author of Coffee: A Global History, European workers were key contributors to the UK’s coffee shop boom from the mid-1990s onwards. “This was a period when we had an extensive number of EU students coming to the UK who would combine study with work, often in hospitality.”

Storage containers at Greenock Ocean Terminal in Scotland, UK, ready for export | Photo credit: Richard Johnson/Shutterstock

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Morris also points to closer European integration as integral to the development of a far more globally relevant culinary scene in the UK. “You had much easier movement between Europe, while long-weekend travel and a greater degree of exposure made a European lifestyle more desirable.”

A youth mobility scheme proposed by the European Commission in April 2024 to boost UK-EU cooperation could alleviate staff shortages in key UK industries, including hospitality. However, the proposals were rejected under the previous Conservative government and have been cooly received by the current Labour administration.

“We’ve always been clear that the scheme would be helpful,” says Sophoclides, who notes that total UK hospitality staff vacancies are now below 100,000, down from around 132,000 in mid-2023.

Nevertheless, when it comes to recruitment, the impact of Brexit was relatively short-term compared with the upheaval of the pandemic, says David Abrahamovitch, founder and CEO of Grind, a café, bar and casual dining group with 14 venues in London.

“When we first left the EU, we saw a small spike in team members returning home to EU countries, but this was short-lived. The recruitment challenges hospitality businesses face are not primarily related to Brexit, but rather a general decline in interest in working in the industry overall,” he says.

130 miles away in Nottingham, the impact of Brexit is almost impossible to distinguish from the fallout of Covid and high inflation, says Stephen Fern, Managing Director of 200 Degrees Coffee, which operates a roastery and 21 coffee shops across the Midlands and North of the UK.
 

“Bureaucracy only slows us down and we want the UK economy to flourish”
Paul Chadderton, Managing Director, Sales & Marketing, Matthew Algie

“From a Brexit perspective, I’m not too sure there has been a huge impact for us. Despite the constant ups and downs in the global economy, we’re in pretty good shape,” he says.

“When we did notice an impact, it was due to other external forces. There were lots of delays and shipping and container prices went up because of Covid. Train strikes, poor coffee harvests, the energy crisis, wage inflation. It’s been one thing after another.”

In a challenging economy, Fern urges the UK government to consider the impact of above-inflation cost increases, VAT and business rates on the hospitality industry, especially for smaller businesses.

“You can’t keep pushing those costs onto customers because you will hit a tipping point. I think the government needs to look at how it will support small businesses in other ways to mitigate above inflationary cost increases and greater taxation on companies.”

While Fern is open to the idea of an EU youth mobility scheme, he says 200 Degrees Coffee is more focused on working with young people in the community, particularly those from disadvantaged backgrounds, through its eight training academies.

“Whether finance, marketing, HR, roasting coffee or customer service there’s huge variety behind hospitality and we give lots of individuals access to those experiences,” he says.

The Brexit trade off

Since Brexit, the UK has signed trade deals with Australia and New Zealand, joined the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP) and agreed limited economic cooperation with the US and India. However, the EU remains a vital UK trade partner. Government data shows exports of goods and services to the EU were valued at £356bn in 2023, comprising 42% of the UK total, with EU imports valued at £466bn – 52% of the UK total.

A 2020 UK government campaign urging businesses to prepare for the end of the Brexit transition period | Photo credit: Yau Ming Low/Shutterstock

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Whether espresso machines, roasting equipment or green coffee, UK coffee and hospitality businesses rely heavily on imports from Europe. However, bringing these vital goods into Britain now requires items be declared and import tariffs to be paid – all of which means extra paperwork, costs and greater risk of delays.

“From an administration perspective I’ve had to build in a lot more safety for what is considered ‘standard’ stock holding,” says Paul Blakeman, UK Country Manager at Melitta Professional Coffee Solutions, which supplies equipment and roasted coffee to around 650 UK hospitality venues operating some 2,000 espresso machines.

A wholesale coffee strategy has contributed to Melitta UK tripling its revenues since 2019. However, post-Brexit customs changes have created greater uncertainty and price volatility.

“Our costs for transporting goods have increased significantly and we’ve had to adjust our pricing far more regularly than I’ve seen over 18 years working in the industry,” Blakeman explains. “It’s good practice to implement just one price increase per annum but in the first year of Brexit we moved prices about four times.”
 

“Our costs for transporting goods have increased significantly”
Paul Blakeman, UK Country Manager, Melitta Professional Coffee Services

Blakeman emphasises that higher coffee prices driven by poor harvests and supply chain disruption globally have also played significant roles in price instability. However, he estimates that extra paperwork and tariffs due to Brexit have added around 20% to overall costs for Melitta UK.

Nevertheless, the coffee services provider continues to perform strongly, particularly in the restaurant and travel segments. “Those two industries have recovered well from Brexit and Covid,” Blakeman says.

Founded in 1864, Matthew Algie is one of the UK and Ireland’s largest coffee suppliers, providing roasted coffee and equipment to more than 7,500 businesses and employing 400 staff. As Paul Chadderton, the Scottish business’ Managing Director of Sales & Marketing explains, Brexit, the pandemic and supply chain volatility are headwinds the 160-year-old business has taken in its stride.

“External factors have a huge impact on the way that we do business but we trade in the second largest commodity in the world, so we’re used to planning ahead,” he says.

Like many large businesses, ensuring watertight compliance with new trade rules has also generated additional costs in the form of consultancy fees for Matthew Algie. Faced with greater trade complexity, Chadderton says simplifying EU customs rules would be hugely beneficial for his business and the wider UK coffee industry.

“We want trade with Europe to run smoothly so we can energise growth. Bureaucracy only slows us down and we want the UK economy to flourish,” he says.

Despite facing new trade obstacles following Brexit and other global events, Chadderton is upbeat about the future as Matthew Algie begins production at its new state-of-the-art expanded roastery following a multi-million-pound investment in 2023. “The business’ performance is very strong,” he says.
 

“We were promised de-regulation and that hasn’t been delivered”
Deryck Gaffney, UK & ROI Managing Director, Eversys

Another key part of the UK’s EU withdrawal agreement is the Northern Ireland Protocol, which avoided a hard border on the island of Ireland after Brexit but has led to greater complexity for businesses with joint UK and Ireland operations.

“We made a strategic decision in preparation for Brexit to exit the Irish market because we knew access to market was going to be difficult following the regulation changes,” says Melitta’s Blakeman.

Effectively handing the Irish market back to Melitta in Germany was a prudent decision as trade concerns proved to be well-founded.

“It was quite evident within the first three months following Brexit, when we were still trading with Ireland, that it was becoming very impractical to transport equipment because of paperwork issues and documentation changes – that certainly caused us a problem,” says Blakeman, who adds, “I think the overall marketplace is still very healthy.”

Switzerland-based Eversys is another coffee business navigating new trade realities following Brexit. According to Deryck Gaffney, Managing Director UK & ROI, the super-automatic coffee machine manufacturer adapted to new VAT and customs clearance rules with relative ease. “It’s a complication of doing business, but it’s very straightforward once it’s set up,” he says.

EU Council staff members remove the UK flag from the European Council building in Brussels on 31 January 2020 | Photo credit: Alexandros Michailidis/Shutterstock

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However, a new border in the Irish Sea did compel Eversys to make structural changes to its UK business. “We used to import goods into the UK and get our courier to send them over to Ireland. If we do that now we have to pay 3% duty because of the border, so our Irish business now deals directly with Switzerland,” he explains.

Weighing up the impact of Brexit, Gaffney says the stricter trade regime has upped the game of many machine suppliers and contributed to greater professionalism and resilience. However, when it comes to defining the benefits of Brexit, Gaffney is less optimistic. “We were promised de-regulation and that hasn’t been delivered. In fact, we’re becoming more regulated than Europe,” he says.

Contrary to a bonfire of red tape, trade between Europe and the UK has become more complicated on both sides of the Channel. As Lavazza Group Chairman Giuseppe Lavazza told World Coffee Portal in June 2024 when asked about the UK market following Brexit. “Everything that can simplify the trading relationship and enable us to integrate better, faster and with stability and transparency is very welcome. We don’t like uncertainty.”
 

“With the right conditions we can be set for growth of 6% per annum”
Tony Sophoclides, Director of Strategic Affairs, UKHospitality

While many UK businesses are managing the new import rules effectively, exporting to Europe has also become problematic. Reversing a trend of slow growth before Brexit and the pandemic, 2023 goods exports to the EU were 11% below their 2019 level in real terms, according to the Office for National Statistics (ONS).

“Sending roasted coffee to Europe got really hurt by Brexit,” says Grind’s David Abrahamovitch, who oversees a sizeable direct-to-consumer retail packaged coffee business. “The delays, customs forms and extra costs have made it so much harder. I know a lot of friends in the industry who simply stopped trying to sell to the EU as a result. Streamlining the process and allowing us to export coffee more easily would make a lot of sense from a UK business perspective,” he says.

A barista serving customers at a coffee shop in London, UK | Photo credit: Alena Veasey

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Buyer’s remorse?

A survey conducted by the National Centre for Social Research in May 2024 found 55% of Britons believe it was wrong to leave the EU against 31% who support Brexit. Nevertheless, even if the UK public warms to the idea of rejoining the EU, that doesn’t mean its 27 member states will – or even that the UK could return on the same terms.

“We had a good deal in Europe where we benefited from the single market, free movement and were not tied into the Euro currency,” says Professor Jonathan Morris. “Rejoining would not mean returning to what we left behind”, he says.

Brexit may not have been the catastrophe that many had imagined, but it is certainly yet to deliver the promised benefits for the UK economy. As Labour MP and chair of the Labour Movement for Europe Stella Creasy recently wrote in The Guardian: “Brexit has not been a “big bang” of damage but a slow drain of talent, investment and, ultimately, growth… You can’t make Brexit work, but you can fix some of the problems it has created.”

There’s no doubt UK hospitality businesses have proved remarkably resilient throughout numerous headwinds since 2016. World Coffee Portal data attests to the strength of the UK coffee shop market, having tracked more than 20 years of sustained sales and outlet growth.

“Whatever has been thrown at our business, we’ve managed to come out the other side. We’ve become leaner and more efficient. We’ve simplified our processes and menus to make our team’s lives easier,” says 200 Degrees’ Fern. “Whether it’s Brexit, Covid or train strikes, UK businesses have become very resilient,” he adds.

UKHospitality’s Tony Sophoclides echoes that sentiment and firmly believes the industry has a bright future ahead. “There’s not a community across the UK that doesn’t have hospitality present. It’s highly valued socially, culturally and promotes well-being across generations. With the right conditions, we can be set for growth of 6% per annum over the next four years, which even on the best forecast, would outstrip the general economy.”
 

“Rejoining would not mean returning to what we left behind”
Professor Jonathan Morris, University of Hertfordshire

Brexit was sold as a golden opportunity to unshackle the global potential of the UK economy, but the reality increasingly feels like an exercise in damage limitation. For a political project that was supposed to slash red tape and boost Britain’s trading power, Brexit means more bureaucracy, trade complexity and rising costs.

While external factors, such as Covid, global conflicts and the climate emergency have all played significant roles in shaping the current economic landscape, these challenges are very different from the political choices that delivered the UK’s hard Brexit. Resilient and innovative UK coffee businesses have faced an unprecedented series of challenges over the last few years. Of all of them, Brexit, and the way it has been implemented, stands out as the most avoidable. 
 

This article was first published in Issue 22 of 5THWAVE magazine.

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