IRISH food SMEs are optimistic about their growth prospects, according to new research by Love Irish Food and PwC, which found that 75% of companies operating in the sector are anticipating their revenues to increase in the year ahead. The 2021 Irish SME Food Barometer reveals that this optimism is echoed by a favourable outlook for the Irish economy with 65% of companies confident the economy will improve over the next 12 months, despite challenges related to COVID-19 and Brexit, up from just 16% in late 2019. However, some caution is in the air as these positive economic growth forecasts are tempered by 22% of companies who believe economic growth will decline in the year ahead.
Speaking at the survey launch, Owen McFeely, Director, PwC Retail & Consumer Practice, said: “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.
"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.”
Commenting, Kieran Rumley, Executive Director, Love Irish Food, said: “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. 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.”
Investment to ramp-up 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, 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, representing a dramatic turnaround.
Furthermore, 20% of respondents confirmed that they are planning to launch new products or services to drive business growth in 2021. A total of 11% will enter new markets. Other activities to drive business growth include implementing operational efficiencies (19%) with a further (11%) aiming to achieve growth by investing in digital strategies.
Almost one in ten (8%) will seek price increases, up from 6% 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.
COVID-19 and volatile commodity prices key threats The impact of COVID-19 (58%) 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 (43%) 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 (24%) 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. 26% of respondents said that the UK continues to be their most important market. Notably, almost a quarter (24%) stated that more than one-fifth of their company’s revenues in 2021 will come from trade with the UK compared to 19% in 2019. 69% consider the Republic of Ireland their most important territory for growth.
Increased spotlight on sustainability Environmental sustainability remains high on the agenda for Irish food and drink SMEs with 60% of those surveyed stating that the importance of having an environmental sustainability strategy in place has increased this year.
In addition, over half (57%) of companies confirmed that they have a sustainability plan in place to make improvements throughout 2021. Key areas of investment include energy consumption (22%), packaging reduction (18%), and water usage (16%).
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 55% of consumers agreed that they buy from companies that are conscious of protecting the planet, and 54% 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 (55%), local produce (50%), and sustainable packaging (46%), regardless of shopping online or in-store.
Owen McFeely concluded: “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.”