THE SUNDAY TIMES: Irish food firms take stock of unsavoury prices

In a difficult environment for food businesses, Keith Symes appears to have it all figured out. The Wicklow man set up his company, Sussed Nutrition, in 2017. Today its range of oils, condiments and vegan treats are sold nationally in stores such as Dunnes, Tesco and SuperValu.

However, the challenges faced by small food producers such as Symes are growing fast. Though he grows his own rapeseed, for example, he must also buy it in, and prices have more than doubled, from €370 to €750 a tonne. Russia’s invasion of Ukraine is only the latest in a series of events stoking inflation.

“There have been several weather-related shocks, attributed to climate change, plus spiralling input costs such as fertiliser and fuel. Fertiliser alone has risen from €350 a tonne in 2020 to €1,000 a tonne,” he says.

Next year will be even worse. “Once 2021 harvest stocks have been depleted, [rapeseed] oil producers will need to increase their prices not only to cover the extra cost of the raw ingredient but to cover the cost of the increased overheads that have hit their margin heavily.”

The cost of his inputs is “rocketing” but the price that Symes can charge for his product is not. “It’s not until everyone’s stocks are depleted from last year that I can put up my prices. I have to wait. If I put up my price too soon, I lose customers. It’s a waiting game. I’m stuck.”

In the meantime “margins are taking a hammering”, Symes says, predicting that consumers will see an increase of more than €1 per litre in the price of rapeseed oil by November.

That will bring its own problems. “High-quality cooking oils such as extra virgin rapeseed oil will become highly sought-after as the cheaper sunflower oil stocks deplete. As a producer my concern is that if the economy slows substantially, will the majority of middle to low-income people be able to afford premium-end produce?”

The only consolation for producers and consumers alike is the old adage that “nothing cures high prices like high prices”, Symes says.

In the meantime there is risk. “If I purchase too much seed at a higher price, I risk having overpaid. It’s a waiting game. It’s like gambling.” And although demand is soaring he must be careful. “If you grow too fast you risk overtrading.”

All he can do is control the controllables, which for Symes has meant investing €450,000 in automated production lines. These will allow him to scale up production, introduce new lines such as salad dressings, and keep labour costs down.

It has been a hefty investment at a time when prices for everything from delivery to labels have gone up. “But if you don’t invest in time, you won’t be competitive and you won’t be in business. We’re already running at full capacity now,” Symes says.

An enterprise resource programme keeps track of the impact every cost change has on margin instantly. “It’s essential to know every last penny. Just looking at your bank account is not the way forward. The biggest problem going forward is going to be making a profit,” he says.

Love Irish Food, a food business group, says that its members are facing a tidal wave of challenges. A recent survey it undertook found the top threat to growth was rising input costs and inflationary pressures, affecting 97 per cent of respondents.

Just under one quarter (24 per cent) believed Ireland’s economy will improve over the next 12 months, down from 65 per cent last year.

Despite the gloomy outlook, most respondents felt they had robust enough business models in place to cope and were taking action to control costs. As a result, a large majority (85 per cent) were confident about the prospects for revenue growth in the year ahead, up from 75 per cent last year.

It’s an anomaly but explainable, believes Kieran Rumley of Love Irish Food. Though the sector is facing adversity, he says, it has earned its spurs.

“We thought with Brexit that we would fall off a cliff. But we prepared for it and the industry got through it. Then Covid hit — a huge, dynamic crisis that affected products, logistics and supply chains — and SMEs coped. Now we have the war with Ukraine.” The impact of Russia’s invasion isn’t just on cereals such as wheat for food, but for animal feed too. Poultry and pig farmers depend on it.

“But it goes beyond even that. Ukraine is also one of the biggest producers of glass bottles and jars. That puts enormous pressure on supply. And on top of all that we are seeing unbelievable increases in energy costs,” Rumley says.

Yet there is good reason that the overall mood among Irish food businesses is, he says, “one of cautious optimism”.

After all, as Owen McFeely, retail consulting director at PwC, says: “In a recession people will cut discretionary spending but they still have to do a grocery shop and feed their family.”

Increased energy prices also strengthen the business case for investing in renewable energy systems, he adds. Rising wage inflation supports a move towards driving down labour costs by automating.

Right now the biggest challenge facing the sector is consumer confidence, according to Mary Sadlier of Coole Swan, an Irish cream liqueur.

“Consumer confidence is beyond fragile,” she says. “It always has been but in previous years something might have happened a couple of times a year to spark a crisis in it. Now it feels like once a week. It’s why we talk about a tsunami — the pace of these events is accelerating.”

For food businesses it makes pricing particularly difficult, especially as just-in-time deliveries have become less common, and more complex ad-hoc ordering — often from various suppliers — is required. “Large companies have shock absorbers; small ones like us don’t. But what we lack in shock absorbers, we make up for in nimbleness,” Sadlier says.

She too is confident in her brand’s resilience. “We know the desire for quality will never go away, so we are opening up new markets. We are also focusing on costs. Before no one talked about costs, they just thought you were being mean. At least now it’s come back as part of a realistic conversation,” she says.

Coole Swan employs 30 people and this year Sadlier plans to grow sales in the UK. “You have to look forward,” she says. “If you stood still and looked at all this, the tsunami would swallow you up. You just have to run faster to survive it.”

Credit:
Sandra O’Connell
Friday June 10 2022, 12.01am BST, The Sunday Times

Source: https://www.thetimes.co.uk/article/irish-food-firms-take-stock-of-unsavoury-prices-fschlbbv2