Wednesday 16 October 2019

Alan O'Neill: 'What Circle K can teach us about Brexit planning'

The fuel retailer offers some important lessons for firms concerned about the prospect of a 'hard' Brexit

Circle K CEO Gordon Lawlor
Circle K CEO Gordon Lawlor

Alan O'Neill

Alan O'Neill, author of Premium is the New Black, is managing director of Kara Change Management, specialists in strategy, culture and people development. Go to www.kara.ie

In the past six months, I have tried to avoid talking about Brexit, opting instead to leave it to the journalists. Maybe it's subconscious wishful thinking that if I don't talk about it, it will go away. Well, it didn't work.

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Whatever the politics of the situation, the implications for businesses are very real. Every day, the airwaves are bombarded with government departments warning businesses to have contingency plans in preparation for a 'hard' Brexit scenario. While I realise that each organisation and every industry has its own set of challenges, I'm keen to show some samples of what a plan actually looks like.

This week I'll give you a flavour of what one organisation is doing to prepare for the worst.

Circle K

Owned by Canada-based Alimentation Couche-Tard, Circle K is the largest distributor and retailer of fuels in Ireland.

It imports 40pc of the total fuel demand in Ireland and this supply comes from multiple locations, including the UK, Europe and other non-European locations.

And its retail convenience business is mostly supplied by the Musgrave Group. Nevertheless, there are challenges that need to be planned for.

Six months ago, a cross-functional team was developed to explore the challenges and to plan accordingly. This included representatives from most departments, such as finance, fuels, retail, logistics and planners, for example.

In a series of meetings led by senior people, this team mapped out the full supply chain and identified risks. Its three-month plan is robust, so the date of Brexit is now irrelevant. I met this week with newly appointed chief executive Gordon Lawlor and he shared this summary of that plan.

Challenge No 1, for Fuels

Leaving Circle K aside for a second, the vast volume of goods that are traded between Ireland and the UK come through Dublin Port. Today, trucks roll on and off the ferries with great efficiency, as there are no checks.

In addition, most fuel for the country is stored at Dublin Port. The issue for Circle K, therefore, is one of congestion at the port.

All indications are that in a hard Brexit scenario, trucks will have to go through some form of customs checks. Paperwork and spot checks of cargo will inevitably cause queues and subsequent delays.

In response, Circle K is doing the following:

1. Building additional volumes of fuel in advance at its Dublin and Galway terminals, and in its company-owned forecourts.

This presents extra working capital challenges which will have to be budgeted for. The company is also advising its dealer-owned service stations and other partners to do the same.

2. Building additional delivery capacity for fuel deliveries from its fuel terminal in Galway.

3. Because the company has 150-plus trucks coming in and out of the Dublin Port area every day to service the Leinster region, it has engaged with the Gardaí and Dublin Port Authority for discussions and contingency planning.

4. Extra truck contractors have been engaged and are on standby to support any emerging needs.

5. There are potential risks of tariffs on gasoline imports from the UK. However, Circle K has mitigated that risk in its supply chain.

There are other fuel products that it imports from the UK, so VAT pre-payment is a potential financial cost.

However, today the company already handles many imports from non-EU sources, so the additional compliance burden, while not welcome, is understood.

Challenge No 2, for Convenience Retail

Despite there being a strong indigenous food manufacturing business in Ireland, most dry goods (such as confectionery, for example) come from the UK. The issues with that for all retailers are two-fold.

One is managing the supply chain, and the other is managing the pricing risk, mainly due to additional tariffs.

Circle K has an agreement in place for the Musgrave Group to service its retail convenience stores. In this collaboration, both organisations are working closely together to mitigate the risks posed by a hard Brexit. For dry goods specifically, this is the plan:

1. To overcome supply challenges, build extra stocks of top-selling lines in advance of Brexit.

However, a very significant part of the sales mix comes from fresh produce, which carries a much shorter shelf life, so Circle K is working very closely with local suppliers to ensure continuity of supply.

2. The pricing challenge is more complex. Should the company pass currency effects and tariffs on to the consumer, or suck them up?

Or can similar goods be sourced elsewhere? (This latter option, however, is not easy as consumers tend to get locked into their favourite chocolate bars.)

"This is difficult and one of the most frustrating parts of Brexit. In the event of a hard Brexit, it is likely that many retailers like us will be faced with these hard choices. Most businesses will not be able to absorb cost increases and will have to pass them on. We will continue to look for ways to avoid these costs and source from other European markets and/or find local alternatives, where possible. However, in summary, I am very confident that we can handle the challenges that Brexit may throw at us," said Lawlor.

The Last Word

I have chaired and spoken at a number of events recently that were organised to encourage businesses to start planning for a hard Brexit. Those that come are, arguably, already converted.

But regardless of whether you are directly or indirectly affected, if you haven't taken time to explore and assess your risk, then it might come back to bite you.

There is so much help available to you from concerned entities, such as your own bank, InterTrade Ireland, Bord Bia, Enterprise Ireland and more. Check them out.

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