Scotland & the EU Scotland's Economy ScotRef

Brexit threatens survival of many small firms, claims fine chocolates firm

Written by Rhona Middler

Author: Angus MacRuary, owner of the Isle of Skye Chocolate Company.

At the moment we quite rightly emphasise the benefits of trading with the EU that we are about to lose; the markets, companies, organisations and individual customers we currently supply, that will be more difficult to do business with as a result of Brexit.

But what about those of us who rely on the EU for our raw materials, components, and goods for resale? Trading is always a two way street and many businesses in Scotland depend on EU suppliers for many of their inputs.

My wife and I run a small high-end chocolatiers business, which we took over in 2015 and have been gradually building since. Our market is nearly all domestic, with our customers being a mixture of tourists and locals who enjoy quality hand-made chocolates. We also sell online (in growing quantities) to the UK and abroad.

Our market demands the best quality and so we source the best quality ingredients. Although the cocoa bean is produced in many places around the world, it is in Europe, and Belgium in particular, that it is processed into the fine couverture (chocolatiers’ chocolate) that we use to produce our own hand-made chocolate products.

High quality ingredients come with a high price and so, even although we have only a fairly narrow margin, our chocolates are expensive. Thankfully, customers are willing to pay for the quality they know they will receive from us.

Our first year saw us start to build up trade. Things were looking optimistic and my wife gave up her well-paid full-time job to join me in the chocolate kitchen. We operate from home but invested in the best of equipment and converted our garage into a dedicated Chocolate Kitchen. We were committed!

And then the EU Referendum – with the result no-one expected, least of all those who gave it to us. Literally within one week of this our Belgian supplier increased its prices by 10% across the board as a result of the fall in the value of the pound against the euro. This was slap-bang in the middle of the tourist season for us and there was no way we could hit our customers with a price increase to cover this so we accepted a reduction in our already modest margin.

On 1 January 2017 we were hit with another 10% increase in our raw material prices, due to the continued slide in value of the pound. At least this time round we received fair warning from our supplier and so were able to stockpile a reasonable quantity which enabled us to hold off from increasing prices to our own customers until 1 April. To maintain our margins we would have had to increase our own prices by 21%; we settled for 10% as we felt that this was as high as we could go.

As the pound continues to depreciate we know that raw material prices will continue to rise and so we have to consider our future. Although consumers will pay that bit extra for our high quality products, there is a limit to this.

In 2015 we felt that we had a small business with “real potential”, so much so that in 2016 my wife joined me in it. Our optimism of even last year has faded fast and we now wonder if it will be viable for us to continue on post-brexit.

The light at the end of our tunnel – and the hope that keeps us going – is that Scotland will vote for independence, we will be able to maintain single market access remain in /rejoin the EU.

In business we can all be a bit insular and often fail to see much beyond our own narrow field of vision. I am sure that there are many more Scottish companies – larger and more important than our wee chocolatiers business – who will face the same challenges that we foresee. How many can absorb the sort of price increases in raw materials that they are likely to see? How much can be passed on to customers before they stop buying? How many jobs will be lost in cost-cutting, with associated costs to the public purse? How many will, like us, question their continued existence because of a Brexit Scotland didn’t vote for and doesn’t want?

About the author

Rhona Middler

Rhona is Business for Scotland's Engagement Executive and Events Manager.

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