April 27, 2021
Profiles and Interview
By Gill Stedman
Updated / Tuesday, 27 Apr 2021 06:00
Most small and medium sized businesses in the food sector expect their revenues to increase in the year ahead, according to new research by Love Irish Food and PwC.
The 2021 Irish SME Food Barometer found that 75% of companies in the sector are optimistic about their growth prospects.
The findings suggest that there is a wider sense of optimism in the sector, with 65% of companies confident the economy will improve over the next 12 months.
Despite challenges related to Covid-19 and Brexit, that figure is up from just 16% in late 2019.
However, the research shows that 22% of companies believe economic growth will decline in the year ahead.
Owen McFeely, Director, PwC Retail and Consumer Practice, said the research reveals “cautious optimism” for business prospects for Irish food SMEs.
“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,” he said.
According to the survey, the impact of Covid-19 is the greatest threat for the food and beverage sector.
However, Kieran Rumley, Executive Director of Love Irish Food, said that volatile commodity prices now pose a new and significant threat to companies
“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,” he said.
The research also 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.
69% of respondents stated that they will not delay investment over the coming 12 months, compared to 62% who said they did delay such investment in the last 12 months.
Meanwhile, 20% of respondents confirmed that they are planning to launch new products or services to drive business growth in 2021, while a total of 11% will enter new markets.
Respondents also indicated that environmental sustainability remains high on their agenda, with 60% of those surveyed stating that the importance of having an environmental sustainability strategy in place has increased this year.
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December 03, 2019
Profiles and Interview
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
- 96% confirmed capital investment plans for 2020; 10% said that this would be ore than €3 million
- However, just 6% of respondents are expecting a price increase to drive revenue in the year ahead; retailers’ opportunities to grow margins must now lie in the use of innovative technologies and doing things differently
- 84% reported that they have an environmental sustainability plan in place to make improvements in 2020
- 31% delayed investment in their businesses in the last three years due to Brexit
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.”
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