Eversheds' Annual Food and Drink Conference 2015 - key highlights

22nd October 2015

Eversheds' Annual Food and Drink Conference 2015 - key highlights

Eversheds' Annual Food and Drink Conference 2015

Keynote speaker – outlook for the food and drink sector
On Thursday 15 October Eversheds hosted its Annual Food and Drink conference, opening with a keynote speech by Clive Black, Head of Research at Shore Capital. Clive shared his views on the trends and challenges of the industry, drawing on his wide experience from his role with the Foods Standards Agency between 2011-2013 and his position as one of the UK’s top consumer analysts.

So what themes did Clive pick up on from 2015 and what did he predict in the coming years?

Clive declared that families are becoming household economists, and whilst they are spending money on “affordable treats”, they are becoming increasingly savvy on their weekly shop; investing time into shopping around to save money. He predicted that eating out would become more common, as would brands that serviced consumer comfort.

The changes in consumer spending are set to drive change. Clive expects to see the big four supermarkets contract and not open new stores and to respond to the customer’s preference for simplified pricing and the increased importance being placed on health and wellbeing. Whilst the rise of the discounters has been lauded over the last few years, Clive predicts that their growth would slow in the face of additional scrutiny from the market but reiterated that they are here to stay.

Looking ahead Clive anticipates a 10-15% p.a. growth in the online food market, but he doesn’t expect it to revolutionise the industry, where multi-channel continues to be a challenge.

The uncertainties surrounding the European referendum are also expected to cause volatility in the industry. This said, in a changing market and rising entrepreneurship, he still expected the big four to remain the centrepiece of the British grocery market albeit in a more streamlined, focused and relevant way.

 
Global M&A in the food and drink sector 
M&A activity is back at the top of the corporate agenda and a number of very high profile deals in the food and drink sector have been announced this year.

Amanda Partland, Partner at Eversheds, provided a summary of a number of these deals which included the Kraft/Heinz merger and the acquisition of Iglo Foods by Nomad Holdings.

Key themes emerging from these deals include the strong international dimension of transactions, the fact that the UK is a destination of choice for investors from the U.S. and Asia, the fact that further consolidation was anticipated as a result of a number of these deals and that consumer demand for healthier products is helping to generate M&A activity.

Amanda discussed some of the challenges of large cross-border M&A transactions and provided a number of useful tips for completing successful deals, such as:


  • ensuring that deal preparation is started at a very early stage when looking to sell a business.  It was noted that a failure to give sufficient thought to what is being sold and, in particular, to separation issues arising on a disposal can result in value being lost; and

  • ensuring that a core team of legal, commercial and finance professionals is put in place to connect all the various elements of the deal and to take the transaction from inception to integration.


Amanda concluded by inviting delegates to consider what they would do differently on their next deal.


 

For further information, please contact:

Amanda Partland
Partner
Tel: +44 113 200 4620
amandapartland@eversheds.com

 
Employment law update
Increased pressure to ensure labour laws and procedures are being enforced rigorously, as well as the introduction of the Modern Slavery Act and mandatory gender pay gap reporting are key issues set to impact the food and drink sector. Marc Meryon and Naeema Choudry, Partners at Eversheds, set out what the food and drink sector can do to prepare for their implementation.

Section 54 of the Modern Slavery Act 2015 created a ground-breaking requirement for organisations to report annually on the steps taken to stop slavery and trafficking in their businesses and supply chains. The obligation to report applies to all commercial organisations with a turnover over £36m operating in the United Kingdom. Failure to report could result in enforcement proceedings by the Secretary of State for an injunction, but the bigger risks are to reputation and therefore profitability.

The food and drink industry is particularly at risk given the complex chains of subcontracting, reliance on low skilled labour and the pressure from consumers to keep prices low. In terms of the reporting obligation, the Modern Slavery Act will require food and drink businesses that fall in scope to make an annual statement confirming what (if any) steps they have taken to ensure slavery/human trafficking is not present within their business or their supply chain. Such statement must be approved by the board of the organisation and signed off by a director (or their equivalent) and then published in a prominent position on their website.

Marc concluded by proposing a roadmap for action, the substance of which can be found in our guide, Disclosure time: How to respond to the Modern Slavery Act, available here.

Mandatory gender pay gap reporting is another key issue for employers. On average, women in the UK work for free from 4 November each year – that is 57 days of free work. The average gender pay gap in the UK stood at 19.1%; averages for the hospitality/catering, retail and FMCG sectors are 18%, 12% and 13% respectively. Some of the largest pay gaps are therefore in the food and drink sector.

What is contributing to the sector’s pay gap? Naeema noted that, in the food and drink manufacturing industry in particular, only 33% of the workforce are female and the majority are in part-time work. There is also a misconception that women are better suited to more ‘delicate’ roles and are often employed in lower paid and casual positions.

Naeema went on to outline some key facts: mandatory reporting will apply to all private and voluntary sector employers with at least 250 employees, but precise details on what will be required are not yet know; the Government’s proposals having recently been subject to consultation.

Naeema concluded that the outcome of the consultation is awaited, however, in the meantime businesses should be proactive and prepare for the legislation coming into force. Businesses should take action to review current pay practices and understand where differences in pay exist, analyse the reasons for those differences, identify where risks lie and plan a programme of action, where necessary. Businesses should also refer to the Government’s guidance on voluntary reporting Think, Act, Report for some examples of action that businesses may take to reduce pay gaps and improve gender equality.

 

For more information, please contact:

Marc Meryon
Partner
Tel: +44 20 7919 0900
marcmeryon@eversheds.com

Naeema Choudry
Partner
Tel: +44 161 831 8283
naeemachoudry@eversheds.com

 
Global compliance
Food businesses are under increasing pressure to have robust due diligence systems that can cope with a globalised supply chain, increased traceability and more informed consumers.  Katharine Vickery, Partner at Eversheds, delivered an interactive session considering the characteristics of an effective modern due diligence system, which must ultimately protect the company from enforcement action leading to prosecution and reputation damage. Katharine looked at how different stakeholders in a business can monitor and contribute to that system and, when things go wrong, how to deal with a regulatory investigation particularly in anticipation of the forthcoming changes to sentencing guidelines for food safety offences in early 2016.

Katharine explored the due diligence checks that businesses should consider in relation to suppliers and how far those checks need to go.

There was a discussion around the likely impact of the Sentencing Guidelines for Food Safety and Hygiene Offences which are due to be published in November and are expected to take effect in February 2016. Fines will be linked to turnover and will, for larger companies, significantly increase the level of fines following convictions for these and similar offences.

Katharine commented that in theory the Sentencing Guidelines could be applied to food labelling, advertising and misleading consumer offences too but at present labelling non-compliances are generally being dealt with outside the criminal enforcement regime.

The Sentencing Guidelines can be found here.

 

For more information, please contact:

Katharine Vickery
Partner
Tel: +44 121 232 1771
katharinevickery@eversheds.com

 


Food integrity – panel discussion
The food integrity panel was chaired by Katharine Vickery, who facilitated a discussion and Q&A with Rod Ainsworth, Director of Regulatory and Legal Strategy at the Food Standards Agency and Eversheds’ Head of Food and Drink, David Young. They discussed progress following the recommendations of the Elliott Report in September 2014, including the work of the Food Crime Unit (FCU) and of the industry in developing means of sharing information around food chain integrity. In addition, Rod discussed the FSA’s proposed direction of travel regarding its view of an appropriate regulatory framework.

The panellists discussed the purpose of the FCU in gathering and analysing intelligence on food crime and the balance that needs to be struck between transparency and accessibility, whilst being effective as a crime agency. It was noted that it was still very much in its infancy and it would take time to see its impact in practice.

The intelligence sharing model envisaged by Elliott has not yet materialised. There was discussion about why this might be the case including concerns from businesses about access to shared information for regulators and to what extent sharing might inadvertently lead to competition law breaches. It was acknowledged that it would be for the authorities to work with businesses to alleviate those concerns and delegates suggested that there was a clear role for the FSA to use its influence with the Competition and Markets Authority to obtain comfort.

Rod addressed the conference on his vision of a new regulatory framework within the FSA and local authorities, moving away from regular inspections to placing more reliance on data already available, such as audit outputs, whilst maintaining consumer confidence. Both David and Rod agreed that there needs to be more consistency from the regulators when it comes to enforcement decision making.

 

For more information, please contact:

David Young
Partner and Head of Food and Drink Sector
Tel: +44 121 232 1148
davidyoung@eversheds.com

 


Litigation – a caselaw update
Dealing with disputes on a global scale has its own set of challenges – from legal issues such as determining the relevant applicable law, to practical issues such as managing time zones and cultural differences. In contracts of an international nature, it is quite common for the governing law to be that of England and Wales. However, with the increasing cost of litigation, businesses are more inclined to engage in informal negotiations, in order to seek a mutually acceptable resolution. Mark Rhys-Jones, Partner at Eversheds, provided an update on some important recent cases which could help businesses in this sector prepare for such negotiations.

Firstly, Mark looked at the case of Arnold v Britton, which confirmed the principle that terms must be interpreted on the basis of the natural and ordinary meaning of words, even if that results in a commercially undesirable outcome. Subjective evidence of a party’s intentions must be disregarded.

Mark then discussed the issue of the assessment of damages. The case of Bunge SA v Nidera BV is an interesting recent example of a scenario where there was a repudiatory breach, but subsequently circumstances arose which would have entitled the party in breach to terminate the contract anyway. The court in that case affirmed the principle that such post-breach events can be taken into account when assessing damages. Further, the judgment in the case of Thai Airlines v KI Holdings confirmed that credit must be given for benefits gained from mitigating steps, but that the burden of proof was on the defendant.

Finally, Mark gave a preview of the likely upcoming changes to the law relating to liquidated damages and penalties. The Supreme Court has recently heard two appeals on the issue of enforceability of penalty clauses, and the judgment is eagerly awaited. It is likely to have a significant impact on how businesses in the sector address the issue of charges for breaches in the future.

 

For more information, please contact:

Mark Rhys-Jones
Partner
+44 29 2047 7108
markrhys-jones@eversheds.com

 

Brexit – Potential Implications for the Food and Drink Sector 
In January 2013, Prime Minister David Cameron announced that should the Conservative Party win the next election, a referendum would be held on Britain’s membership of the EU. Nearly three years down the line, the referendum is moving from manifesto pledge towards Government Bill and businesses need to be preparing themselves for a potentially significant change.

Ros Kellaway, Partner and Head of Competition, EU and Regulatory at Eversheds, spoke about the timing of the referendum and examined how Brexit would impact the food and drink sector. To appreciate and quantify the impact Brexit would have, it is essential to understand the five types of potential relationship models that Britain could have with the EU. The models differ in the amount of political freedom they allow which is generally inversely proportional to market access.

One of the most contentious issues surrounding EU membership is the Common Agricultural Policy (CAP), which accounts for almost 40% of the EU budget. Critics say it harms competition by subsidising inefficient farms whereas proponents stress that the CAP is used to look after the environment, rural communities and ensures food security. Brexit would mean an end to the CAP in the UK and its subsidies for British farmers as well as an overall reduction in the EU budget which would need to be filled by the remaining 27 EU Member States.

Ros highlighted that businesses should now be preparing to understand the new tariff barriers that may be imposed on imports and exports between the EU and the UK as a result of Brexit.

 

For further information, please contact:

Ros Kellaway
Partner
Tel: +44 (0)20 7919 4882
roskellaway@eversheds.com

 

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