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.”
Coole Swan cream liqueur has taken the Irish and global markets by storm since its launch in 2010. Maev Martin talks to Coole Swan CEO MARY SADLIER about a family business that is driven by a common goal – to be the best premium cream liqueur in the world and see the Coole Swan bottle
standing proud on every supermarket and off-licence shelf across the globe.
It sounds like a rather lofty ambition, but as so many of the companies in our Meet the Makers series have proven, it is an
ambition that is well on its way to becoming a reality. The business operates from a fifth-generation family farm in the Boyne Valley in Co Meath and has grown to the point where it sells over 250,000 bottles of its premium single malt Irish cream liqueur annually to countries all over the world, while continuing to operate from the family farm. “Studies show that 85% of family businesses are run by ethical standards and family values,”
she says. “This means that family businesses look at more than just revenues. Our business decisions are guided by our values and ethical practices,
rather than profit, so sometimes we may err a little more on quality, value and sustainability, but we think it is the right thing to do.”
The putting quality before profit approach defines how the company operates and Coole Swan’s brand identity. When I ask Mary why they have been so successful in competingagainst a global brand like Baileys, she tells me that they aren’t competing. “I think Baileys are a fabulous brand but we aren’t competing against them,” she says. “I don’t believe that consumers stand looking at a product on a store or supermarket shelf and wonder
whether they will buy Coole Swan or the category leader. They don’t browse in that way when they see us and other brands on the shelf. They buy according to the occasion, the feeling, or the moment.“However, we have found that our entry into the market has brought a bit more excitementinto the Irish cream liqueur category, while raising its profile again and ensuring that itcontinues to grow and innovate. Liqueurs are the third biggest category in the world after vodka and whiskey, and and they cover a wide range of products, so as a nation we should bevery proud of the fact that Irish cream liqueurs, which are in themselves a global category, constitute 20% of the global liqueurs category.”
An impressive CV
Mary cites a number of standout achievements for the Coole Swan brand over the past decade that she believes have put them in a strong position to achieve their ambitious growth targets for 2022. The first big milestone was winning double gold at the San Francisco World Spirits Competition in 2010. “No other Irish brand had done this, so it was a real endorsement of the Coole Swan brand,” she says. “In 2010, Wine Enthusiast, the US bible on spirits and wines, gave it a score of 96 out of 100 and described it as ‘sublime’ and voted it the number one liqueur in the world. Wine Enthusiast invited us back to enter in 2020and we achieved the same score. We are now,once again, the number one Irish cream liqueur in the global market, so this proves that we have maintained the quality of our product over the past decade.”
Another big milestone was securing a listing with Musgrave in 2013. This was followed by a distribution deal with Anzac for theNorthern Ireland market in 2014 and another significant distribution agreement with John Lewis in the UK in 2015. “On the back of these achievements, and the growth that they brought to our business, we could see scalecoming to our operation in 2018,” she says. “Up to that point, we had been a ‘mom and
pop’ structured business, so we bit the bullet in 2018 and restructured our business. That meant that when we were hit by the US tariffs and Brexit it really paid off. In fact, it was the best move we ever made. We were slammed by Brexit, Trump and Covid, but the restructuring helped us to navigate Covid better than we might have if we hadn’t acted.”
Coole Swan appointed a board to the company in late 2018 and its most recent board appointments were announced in the autumn of 2021. The seven board members are experienced industry professionals andinclude Cathal Deavy, customer director in Tesco Ireland, Oliver Thompson, sales directorwith Concha y Toro UK, David Hobbs, transformation director with Boots UK and executive director with Boots Ireland, and John
Beaudette, president and CEO of the leading US wine and spirits importer MHW Ltd.
Pandemic performance According to Mary, the Coole Swan brand has enjoyed ‘steady and solid’ growth over the past 18 months, both in the domestic and overseas markets. “There is a strong customer base for cream liqueurs here and abroad,” she says. “The off-trade compensated for the
absence of an on-trade and the hit to travel retail, while overseas, our best growth came from the US market,” she says. “In Ireland, we focused on increasing our distribution over the past 18 months and we rolled our product out to all Dunnes and Tesco stores in the country. During that rollout there was a tremendous sense of comradery between ourselves and the retailers, who have been extremely supportive of us as we strive to maximise our sales in-store.”
Key export markets
The US, UK, Germany and Canada are the key export markets for Coole Swan. “The UK and the US are our biggest markets, but Germany and Canada are also very strong,”she says. “Our export business to thosemarkets over the past 18 months was verysteady. Everyone that we work with was very collaborative as we were all in the same boat and I think that, over the next few years, we will reap the benefit of our performance over the past 18 months.”
Mary describes Coole Swan as a “steady as she goes, not a boom or bust, brand,” and it is one that took its first tentative steps into the Chinese market this year. “We recently received our first order and we are focusing on the premium market,” she says. “We are trialling with a six star hotel group called the Shangri La Group and we attended a huge trade show in Shanghai earlier this month, so it will be steady as we go in China. We have agood partner out there, so we believe it will be a big market for us in the coming years. Picking a partner that works well with you and is similar to you is the key to being successful in any market, for any business, but that goes double for the drinks business. You have to carefully pick your partner and we
have been very lucky in that regard, but we spent ten years getting it right.”
Coole Swan also recently appointed a new distributor in Ontario in Canada. “Dionysus Wines are huge distributors and great partners
for our business and would be well known as the distributors of Drumshanbo Gunpowder Irish Gin in that part of the world,” says Mary. “We will be embarking on a distribution expansion programme with Dionysus Wines in Ontario in 2022, which will involve expanding our retail and on-trade footprint, and will also cover marketing,brand awareness and customer recruitment.”
The premium proposition NielsenIQ research is predicting increasing polarisation between the ‘constrained’ and the ‘insulated’ consumer in 2022. “There will be a route to market where the ‘insulated’ consumer will find their product, and for everyone else
MARY SADLIER has nothing but praise for the work of the Love Irish Food organisation, and in
particular for the role that its executive director KIERAN RUMLEY has played in helping member
companies to grow their brands in the Irish market. “Kieran’s work for Irish food and drink
brands is phenomenal,” she says. “He is very open to new ideas and and to helping member
businesses with initiatives that they believe will benefit their business.
“Joining Love Irish Food in 2011 was a terrific opportunity for Coole Swan. One of the first things
that happened when we joined was the chance to meet renowned Irish chef Neven Maguire, so
that was wonderful for our business, and indeed any positive business connections we have made
have come out of our membership of Love Irish Food.
“Being present at the Bloom event every year in the Love Irish Food tent was an unbelievable
experience for us. We met all the big chefs and the proximity to other Irish brands that it gave us
was great, as were the learnings that we got from that experience. We also participated in a
podcast with Flahavans and I have to say that I’m pretty much in awe of a lot of the brands that
are members of Love Irish Food. These are all blue chip companies in the Irish market and many
of them are global as well as Irish brands.
“I also love the organisation’s recent collaboration with Tesco Ireland, which I believe will have a
big impact on the membership over the coming months and years, but the biggest benefit of Love
Irish Food membership is the use of their logo, which has had a great impact on our advertising
efforts and a positive knock-on impact on our sales in Ireland and overseas.”