Business

Brexit hurdles force Irish startups to make leap into UK market

The twin hit of Brexit and Covid could have spelled the end for many businesses. But some Irish startups have managed to make it work.

or Sharon Keegan, founder and CEO of body-positive sportswear brand Peachylean, Brexit – and a successful appearance on the BBC’s Dragon’s Den – actually propelled her into the UK market.

Brexit-related delays and new customs duties meant she had to open a UK fulfilment centre and separate website, once it became clear that filling and shipping orders from Ireland was no longer viable.

“If Brexit hadn’t have happened we probably would have just plodded along,” she told the Irish Independent.

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“We weren’t really operational in the UK and when Brexit happened we had to become operational in the UK, so it was kind of a growth thing for us. We took it on as an opportunity more than anything.”

They’re used to next-day delivery, they’re used to really fast shipping, and [with] the delays and the duties and customs, it’s very difficult to manoeuvre.

An appearance on the UK version of Dragon’s Den – where she won a £100,000 investment (about €116,000) in return for 11pc of her business – and support from the Instagram community propelled the brand in the UK.

“The only way I could describe it is like a tsunami, a tidal wave, hitting our mini little Irish startup and accelerating us to a level that we really underestimated,” she said.

The UK arm of the business was necessary to cater for what she describes as a very “individual” customer base there.

“It’s a very different customer. They’re used to next-day delivery, they’re used to really fast shipping, and [with] the delays and the duties and customs, it’s very difficult to manoeuvre. So we had to open up a brand new operations and fulfilment centre in the UK and that was quite costly.”

“But to be honest it’s such a big market, and especially with Dragon’s Den – that big launch platform – we really needed to look at that.”

Shane Ryan, the founder of vegan convenience food brand Fiid, says the same. Despite Fiid’s long shelf life, British consumers were not happy with the fact that orders can now take up to two or three weeks to ship instead of two or three days before Brexit.

“In the eyes of a British consumer, they don’t really have an appreciation for the realities of Brexit. A lot of the time, for them [they put it down to] really poor service delivery,” he explained.

With his pallet costs tripling in price since January, and delays mounting, Mr Ryan decided to open a UK warehouse and fulfilment centre, which is launching this week.

“Brexit hasn’t really dampened any of our ambitions. We still see it as a really big opportunity for us, especially given our success over the last few months,” he said.

Fiid’s products are now in 200 UK stores, compared with five before Brexit.

But it hasn’t been all plain sailing. Before Brexit, the company had to ship seven months’ worth of stock to Britain to avoid any potential delays, tying up €100,000 in a warehouse there.

“We would never ever have that much cash tied up in stock under normal circumstances, and there was a lot of pressure for us, but it was necessary because we saw the UK as a real growth opportunity for us and that’s proven to be the case. At the moment we’ve adapted to the reality of Brexit, but there’s still a lot of frustration, particularly with customs.”

“It soaked up a lot of our cash at the start of the year,” he said. “Since then, from a production perspective, it’s not been a problem.”

Up-front cost was also an issue for Niall Phelan, the co-founder of healthy drinks brand The Naked Collective. He tied up “well over half a million” euros making sure he could stock the shelves in the UK in time for Brexit.

“It soaked up a lot of our cash at the start of the year,” he said. “Since then, from a production perspective, it’s not been a problem.”

The Naked Collective produces all of its products outside of Ireland – in the UK and North America – so there were no particular supply chain issues to deal with.

Expanding into the UK market was “no different to looking at the US”, Mr Phelan explained.

“You’ve got to go in eyes wide open, in terms of what’s the local legislation, what do we need to conform to, what’s the customs?”

However, it is a much more competitive market than the Irish market, particularly in retail.

“It’s the most competitive landscape in the world,” he says, “but you’d be mad not to look at it as the obvious market. But there are other great markets.”

The timing of the pandemic was an issue for expansion into the UK, however.

“Retailers in the UK have this cycle each year: they do a lot of new products in spring, then refresh in autumn. But they haven’t done that in over a year.

“What we’ve seen is the combined effect of Brexit plus Covid has meant all of those new product opportunities have really dried up – until now. It’s just started to open up.”

It has also meant delays in launching their nutrition-focused brewed beverages in bars, restaurants and hotels, as they give the sector some breathing space to reopen.

However, they are now on track to raise €15m fundraising this year, €2.5m of which was crowdfunded via the Crowdcube platform.

The focus for The Naked Collective now is to restart the momentum in the US market

“The most difficult bit is not being able to get on a plane. We have missed so many opportunities in the US,” said Mr Phelan.

Despite the pandemic, Shane Ryan’s Fiid has also managed to land a couple of high-profile backers, including former Ornua chief Kevin Lane, who was behind the strong success of Kerrygold, and plant-based food entrepreneur Sam Dennigan, the founder and CEO of Strong Roots.

“I’ve seen the value that investors like that can bring to a business, in terms of shaping the strategy and shaping the future,” Mr Ryan says.

“If we added two or three more people like that, what would the impact on the business be – beyond just having capital to do things.”

Despite Covid, he said it has been relatively easy to secure investors. Although that is after years of having to stump up cash himself, or ask friends for loans, and on the heels of what he describes as the “spectacular failure” of his first attempt at vegan convenience food.

“It was a scrappy bootstraps business for a very long time,” he explained.

“For a lot of businesses – particularly small businesses in consumer goods, because it is such a cash-heavy business model – there is a lot of pressure to raise money up front.

“While the route that we took was definitely the most uncomfortable, I would recommend that and do it 10 times over. It made the fundraising process so much easier because we had proven ourselves.”

Fiid has now sold more than a million meals, managing to raise some more cash last August. Business even doubled in 2020.

Sharon Keegan is also fundraising, and hopes to raise €1m this year, after a €50,000 Enterprise Ireland grant helped to get her on the funding ladder.

But despite all the good news for exporters, Brexit is continuing to bite for importers. Trade with the UK has evened out after huge swings in January and February, with Irish goods exports to Great Britain rising 13pc in March.

However, imports from Great Britain were still 31pc down in March, compared with the same month last year,

Meanwhile, An Post is looking for customs brokers to help smaller firms clear goods through customs, especially those who still use Irish fulfilment centres.

The company says it has identified a demand for the service since Brexit became a reality for traders on January 1.

While larger firms such as Amazon have shifted to using warehouses in Europe, smaller firms have not, and many UK firms are still shipping directly to Ireland.

“This is a highly complex and dynamic custom clearance environment whereby a typical shipment will contain thousands of different commodity codes including some restricted products,” An Post said.

Things will also get more complicated for exporters when the UK begins phasing in its full customs rules from October.

The Irish Exporters Association said recently that Irish businesses are still experiencing trade disruptions due to a “lack of preparedness in the UK from officials right down to within individual businesses”.

And in a recent survey by the Institute of Directors (IoD), 89pc of business leaders said the Irish government should do more to repair relations with the UK, while two-thirds (66pc) said the Government’s handling of Brexit and Covid-19 have had a negative effect on consumer confidence.

The Naked Collective’s Niall Phelan says the Government was not particularly helpful at the beginning of the pandemic.

“We reached out to Government, through back channels, and we got told: ‘Suck it up, people are dying.’

“During the pandemic [there’s] this challenge of getting your product to market. How do you produce and how do you do all of that on Zoom and Teams and still keep the show on the road? And then help investors understand that we’re a good eight months behind where you want to be, but you’ve got to bear with us until things open up.”

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