A new survey shows that 88% of Irish food companies expect revenue growth in the year ahead, with 34% of these companies expecting revenue growth of over 10%.
The SME Irish Food Barometer was carried out by PwC and Love Irish Food.
It also reveals that while companies are optimistic about the growth prospects for their own businesses, they are less certain about the future performance of the economy.
Almost all respondents – 96% – confirmed that they are planning some form of capital investment next year in order to develop their business, with 10% saying this investment would be in excess of €3m.
But just 16% of SME food firms believe 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, PwC said.
Today’s barometer also shows that just 6% of Irish food companies expect to achieve price increases in current trading conditions.
PwC said this suggests that margin improvements will be derived from advances in technology and operational efficiencies.
The barometer shows that 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%).
84% of companies 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.
On Brexit, just 31% of companies surveyed said they had delayed investment in the organisation due to the UK’s planned departure from the European Union.
Any delayed investment was mainly in areas such as production capacity, operational resources innovation and marketing.
Grace McCullen, Senior Manager at 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,” Ms McCullen said.
“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,” she added.+
Irish Food SMEs expect revenue growth in year ahead
Author: John Kennedy
Date: April 27 2021
75pc of Irish food SMEs expect revenue growth in the year ahead as investment is set to intensify, according to the Love Irish Food/PwC 2021 Irish SME Food Barometer.
Irish food SMEs are positive about the year ahead and many plan to invest, emphasising the continued importance of the UK market.
The 2021 Irish SME Food Barometer by Love Irish Food and PwC Ireland of close to 70 Irish food SMEs found that 69pc of respondents do not intend delaying investment in the year ahead, compared to 62pc who did delay investment over the last 12 months due to pandemic uncertainty.
More than a quarter (26pc) score the UK as their most important export market, with 69pc considering the Republic of Ireland their most important territory for growth.
Close to two-thirds (60pc) state the importance of environmental sustainability has increased in 2021.
65pc of companies are confident the economy will improve over the next 12 months, despite challenges related to COVID-19 and Brexit, up from just 16pc in late 2019. However, some caution is in the air as these positive economic growth forecasts are tempered by 22pc of companies who believe economic growth will decline in the year ahead.
“With the prospects of the re-opening for our economy over the coming months, the research reveals cautious optimism for business prospects for Irish food SMEs,” said Owen McFeely, Director, PwC Retail & Consumer Practice.
“These organisations have seen major disruption in their businesses for more than a year and, with plans for investment, they are now looking forward to turning a corner.”
Separately, the positive sentiment expressed in the new research findings on what is one of Ireland’s largest and most important indigenous industries indicates that there will be a significant uplift in the levels of capital investment made by food and beverage companies, following a significant stall during the pandemic.
Underlining the growth agenda for Irish food SMEs, 69pc of respondents stated that they will not delay investment over the coming 12 months, compared to 62pc who said they did delay such investment in the last 12 months, representing a dramatic turnaround.
Furthermore, 20pc of respondents confirmed that they are planning to launch new products or services to drive business growth in 2021. A total of 11pc will enter new markets. Other activities to drive business growth include implementing operational efficiencies (19pc) with a further (11pc) aiming to achieve growth by investing in digital strategies.
Almost one in ten (8pc) will seek price increases, up from 6pc last year, highlighting the ongoing challenge for many Irish companies who are grappling with tight margins and cost competitiveness. The growth of volume at the expense of value continues to place huge pressure on the food manufacturing sector.
The impact of Covid-19 (58pc) is the greatest threat for the food and beverage sector, according to the SMEs surveyed, fuelled by economic uncertainty, and associated labour issues.
Volatile commodity prices (43pc) are also a significant threat for food and drink SMEs. This is likely a reflection of uncertainties in global and local supply chains. Almost one in four (24pc) are concerned about Brexit.
Meanwhile, despite the varied challenges posed to the sector by Brexit, the UK is the most important export market for Irish food SMEs, followed by the European Union. 26pc of respondents said that the UK continues to be their most important market. Notably, almost a quarter (24pc) stated that more than one-fifth of their company’s revenues in 2021 will come from trade with the UK compared to 19pc in 2019. 69pc consider the Republic of Ireland their most important territory for growth.
“Notwithstanding a difficult trading environment, it is encouraging to see evidence of optimism amongst food sector SMEs regarding the potential for their own company’s performance in the sector, reflecting factors they feel a greater degree of control over,” said Kieran Rumley, executive director, Love Irish Food.
“As anticipated, Covid-19 related issues remain the greatest concern for companies operating in the food and drinks industry.
“However, volatile commodity prices now clearly pose a new and significant threat to companies, especially in the context of Covid-19 related costs imposed on such businesses more recently.
“It is unlikely that SMEs will be able to shoulder the burden of these additional costs for long and may eventually be forced to pass these on as consumer price increases. Love Irish Food is working to increase the support offered to companies throughout 2021, with greater retailer support in the interface with the retail grocery sector, as part of its mission to advance the future of Irish food and drink brands.”
Environmental sustainability remains high on the agenda for Irish food and drink SMEs with 60pc of those surveyed stating that the importance of having an environmental sustainability strategy in place has increased this year.
In addition, over half (57pc) of companies confirmed that they have a sustainability plan in place to make improvements throughout 2021. Key areas of investment include energy consumption (22pc), packaging reduction (18pc) and water usage (16pc).
McFeely said that developing a sustainability strategy is critical as consumers have clearly indicated their willingness to engage with brands that promote their sustainable credentials. This is in line with recent PwC global research indicating that 55pc of consumers agreed that they buy from companies that are conscious of protecting the planet, and 54pc agreed that they buy products with eco-friendly packaging.
For grocery shopping, in particular, consumers across the board say that they’re willing to pay a price premium for healthier options (55pc), local produce (50pc) and sustainable packaging (46pc), regardless of shopping online or in-store.
“A key opportunity for the sector is the area of sustainability. Consumers have become far more sophisticated when it comes to sustainable choices. Irish Food SMEs are and will be dealing with customers who want to know what they are doing to play their part to protect our environment. Building a sustainable business is not a passing fad. Knowing what consumers now value and changing the business model will define their long-term sustainability and growth.”
Pictured at top (from left): Emily MacDonnell, Senior Associate, PwC Ireland Retail & Consumer Practice; Kieran Rumley, Executive Director, Love Irish Food; and Owen McFeely, Director, PwC Ireland Retail & Consumer Practice+