88% of Irish SME food companies expect revenue growth in 2020 – Love Irish Food/PwC Irish Food Barometer new research
PwC and Love Irish Food research reveals optimism among Irish SME food companies despite sectoral challenges
Irish SME food companies are optimistic about the growth prospects for their own businesses, but are less certain about the future performance of the economy. With the vast majority focusing on the home market for growth, expansion into export markets is an area for potential development.
Business growth is set to continue into 2020, but softening expected in the Irish economy.
Very few Irish food companies (6%) expect to achieve price increases in current trading conditions indicating that margin improvements will be derived from advances in technology and operational efficiencies.
Sustainability is high on the agenda.
These are some of the key findings from the 2019 SME Irish Food Barometer, new research carried out by PwC and Love Irish Food launched today taking the pulse on business confidence, growth opportunities and challenges facing Irish SME food companies.
Optimistic about business growth
Showing they are confident about the factors within their control, over eight out of ten (88%) Irish food companies expect revenue growth in the year ahead, of which a third (34%) expect this revenue growth to be in excess of 10%.
Most of this growth is expected to be organic (rather than from external factors such as a merger or acquisition), with the key drivers being new product development and growth of exports in addition to operational efficiencies.
This optimism is reflected when it comes to projected capital expenditure. Almost all respondents (96%) confirmed that they are planning some form of capital investment in 2020 in order to develop their business. One in ten (10%) said that this would be in excess of €3 million.
However, just 16% are of the view that economic growth in Ireland will improve in the year ahead, 50% say it will remain unchanged and 34% say it will decline. As a small open economy, this is not surprising given external uncertainties and a softening in European and global growth.
Just 6% of respondents are expecting a price increase to drive revenue in the year ahead – an ongoing challenge for many Irish companies who are grappling with tight margins and cost competitiveness.
The growth of volume at the expense of value has placed huge pressure on the food manufacturing sector. With a price sensitive consumer, retailers’ opportunities to grow margins must now lie in the innovative use of emerging technologies to better understand shopping habits and to create brand loyalty.
Highlighting the need for development into new markets, the survey confirms that Irish SMEs value the domestic market (the Republic of Ireland) as the greatest source of growth (78%) in the year ahead. 24% said that the US was their most important growth market in the year ahead; 12% said this was the EU and just 11% said it was the UK.
Investment stalled, but not stopped, by Brexit
Suggesting growth is very much on the agenda in the face of change, just 31% reported that they had delayed investment in the organisation due to Brexit. Any delayed investment was principally in areas such as production capacity, operational resources innovation and marketing.
At the same time, the majority (63%) of respondent companies are currently exporting some product to the UK including one in five stating that these exports represent more than 20% of their total revenue. In light of Brexit, time will tell if exports to the UK continue at their current levels. Brexit presents an opportunity for certain Irish food manfacturers who may benefit through import substitution. Irish SME food companies may look to grow business by offering alternatives to product ranges that are currently imported from the UK.
Speaking at the survey launch, Grace McCullen, Senior Manager, PwC Ireland Retail & Consumer Practice, said: “The survey highlights optimism about the future growth potential for Irish food companies. They are also keen to seek operational efficiencies through innovation and technologies to improve margins, cost competitiveness and satisfied consumers.”
“With the domestic market being the priority for growth prospects, expanding into new markets and new products should not be ignored. The UK will exit the EU at some point and that will give rise to new opportunities for manufacturing food products in Ireland that may have been supplied from the UK.”
Skills, potential trade tariffs and operational costs holding back growth
Key challenges curtailing growth prospects include: availability of labour (43%), trade wars and tariffs (37%), operational costs such as energy, insurance and rates (28%), volatile commodity prices (21%) and embracing the sustainability agenda (17%).
Sustainability is on the agenda
84% confirmed that they have an environmental sustainability plan in place to make improvements in 2020. Key areas for this investment are energy consumption, reducing plastics and water usage.
Irish consumers want to buy Irish
Three-quarters (77%) of survey respondents are of the view that the Love Irish Food endorsement is of recognisable value to consumers and retailers largely because it clearly identifies that the product is Irish and sets the brand apart from imported products.
Key reasons for buying Irish, cited by the participating food companies, are quality, supporting local suppliers, sustainability, food traceability and positive impact on the economy.
Kieran Rumley, Executive Director, Love Irish Food, the not-for-profit organisation established to help safeguard the future of Irish Food & Drink brands, said: “The survey highlights evidence of optimism amongst Irish SMEs around growth into 2020, notwithstanding a difficult trading environment. There are considerable challenges in areas such as availability of skills across the board from operational, to technical to management – which in turn highlights the need for a greater take-up of available apprenticeships in the industry.”
“The survey also suggests that Irish food companies are taking the sustainability challenge seriously with many planning to invest in initiatives to improve the environment. This together with the strong regional dispersion of the food industry base contributes greatly to overall sustainability.”
“It’s also encouraging to see that the majority of survey respondents are now looking to invest in their companies in the coming year. For certain food sectors, this represents a significant growth opportunity, specifically for those import substitution sectors. However, behind these positive signals there remains the worrying inability of Irish food producers to recover adequate costs, forcing them to continue to operate on even tighter margins.”
It’s often said that, during economic downturns, advertising and marketing are the first budgets to be cut in small and medium sized businesses. With the announcement of Love Irish Food’s 2020 Double Up Awards, this problem is being addressed head-on with a top prize of a “Double Up” totalling €200,000.00 in radio air time. In partnership with Core and Media Central, Love Irish Food will give five Irish food companies the chance to double their spend on radio advertising in the first and second quarters of 2021. Kieran Rumley, executive director of Love Irish Food, says this is a bit of a departure from their usual awards.
Brand Development Awards
“For the last number of years we’ve run the Brand Development Awards for smaller producers,” he says. “This one is for those who are a bit larger and may have advertised before. The aim is to give them a stronger budget they can plan for now.”
In light of the business interruptions that occurred throughout the COVID-19 lockdown and with the uncertainty of Brexit on the horizon, Kieran says that amplifying the voices of Irish brands has become increasingly important.
“At the moment, people seem focused on (what will happen) this year, but I really think next year we’re going to have the ultimate fallout,” he says. “Hopefully, by then, COVID-19 will have been well-handled, but the cliff edge is Brexit. We don’t know yet what will happen, but the signs are not great, at the moment, for a smooth transition.”
“There is a lot of good will at the moment (among consumers) with shopping local, supporting local and staying local,” he continues. “We want to move that intention into a bit of action, to encourage support of local brands, of foods produced here in Ireland and especially those that use local ingredients where possible. We want to give these brands a stronger voice to consumers; to give them a better edge against imported competitors.”
While Love Irish Food awards are usually geared toward brands that are members, this year they have opened things up to both members and non-members; giving all Irish food brands an equal opportunity to win. Along with winning a €40,000 radio advertising budget for the second quarter of 2021 (matching a spend of €40,000 on advertising in the first quarter), Love Irish Food, Core & Media Central will work with the winners to plan their advertising campaign in accordance with their brand objectives. Winners will have their campaigns shared across Media Central radio stations, which include Newstalk and Today FM. Media Central’s eight stations achieve a weekly audience of over two million.
It is hugely important that we support this Irish industry and other locally owned businesses in every way that we can
Gavin Deans, Media Central’s managing director, says it’s a crucial time to support Irish food producers.
“It is hugely important that we support this Irish industry and other locally owned businesses in every way that we can,” he says. “We hope this initiative can do just that by allowing the winners to reach a much wider audience, over a longer period, across our network of stations than might otherwise have been possible and provide a base to build on in 2021.”
The judging panel includes Kieran Rumley (Love Irish Food), Eddie O’ Mahony (Core) and Gavin Deans (Media Central). Judging will commence in September, with the five winners to be notified on Monday, 28 September.