Article appeared in issue 4, 2020
A year of change and challenge
ifac, the farming, food and agribusiness professional services firm, published its third annual Food and AgriBusiness Report. David Leydon, head of food and agribusiness, shares the key insights
Growing a food business has never been easy: identifying the right market opportunity, producing a product, building a team, establishing routes to market, creating experiences that differentiate your brand, and all while delivering a sensible margin is an ongoing challenge.
Add into the mix a global pandemic and Brexit, and Irish food producers are building businesses in unprecedented times. While routes to market for food producers continue to be dominated by multiples and independent retailers, online sales are showing a significant growth.
As expected, positive sentiment has declined: the ifac Optimism Index is at a three-year low, declining from a high of 74% in 2018 to 55% of businesses in 2020. Revenue has decreased for over half of businesses, with over 60% of businesses availing of Covid-19 supports. The Temporary Wage Subsidy Scheme was accessed by 39% of businesses, showing its true value in helping to maintain employment. Employment subsidy schemes will continue to play a major role for many firms through much of 2021 especially those food producers focussed on food service channels.
On a positive note, there is real resilience in the sector. We see this in the proactive steps businesses took to deal with the crisis and how only one in 10 businesses expects to employ fewer people in the coming year.
Covid-19 has accelerated existing digital trends. More businesses are moving online, as offline market restrictions continue and consumer expectations change. Businesses that don't engage with digital change risk falling behind. We note a year-on-year increase of 54% in the number of food and agribusinesses trading online, and while this is not a panacea, it is part of building the digital muscle of a business.
Environmental measures to tackle climate change continue at pace, with managing waste and by-products, sustainable packaging, environmentally conscious suppliers and energy-saving initiatives, all top priorities for Irish food businesses.
Transitioning the business
Nearly one third of respondents would consider selling their business in the next five years. This is a 60% increase on the 2019 figure. The challenges of operating a small business should never be underestimated. Reasons for considering a sale include tight margins, retirement, and the challenge of recovering from the impacts of Covid-19.
Brexit has been overshadowed by Covid-19, however, the first of January, 2021 will see significant change to how we deal with our neighbours in the United Kingdom. Only 48% of businesses believe they are prepared for Brexit. Almost a fifth are not prepared at all. Medium-sized companies were more likely to feel prepared, with 59% reflecting an ability to allocate resources to Brexit planning. This makes smaller businesses more vulnerable. Increased costs, tariffs, loss of UK sales and transport disruption are the main worries. Brexit, taking place in the middle of a pandemic, is shaping up to be a perfect storm for the sector.
While it’s hardly business as usual, the trends which are having the most impact on food businesses remain constant. Year-on-year, the top three trends continue to be sustainable packaging, local provenance and veganism. What is noteworthy is that sustainable packaging is no longer the standout trend, although its mentions have increased since 2019. Local provenance and veganism have grown in relative importance.
One trend that has been positively impacted by Covid-19 is local provenance. Irish consumers recognised the importance of supporting locally produced products. Technology has played its part in supporting this trend with the emergence of platforms like Neighbourfood.ie enabling more producers to sell online directly to consumers.
For food brands, having credentials from supply chain to packaging that are environmentally friendly will be increasingly important. Our packaging article in the full ifac report highlights how business owners can integrate this practically into their own businesses.
Routes to market
Before the arrival of Covid-19, food businesses tended to have well-established route to market strategies. With Covid-19, in the immediate term at least, many established routes to market were disrupted. Irish food businesses have been forced to react and adopt new ways of doing business. While supermarkets and independent retailers continue to be the primary routes to market for the majority of SME food businesses at 52% of respondents, alternatives including specialist shops (7%) and online sales (6%) have a role to play in a more diversified route to market strategy. Reducing your reliance on just one route to market will help to de-risk your business as you grow forward in a year of change and challenge.
Download the full report at www.ifac.ie/ifacreport