Industry Insights · 13min read

Small Medium Enterprises (SME): The European Food Industry Landscape

Explore some of the challenges and opportunities of our rapidly-evolving industry.

The latest estimates show that the EU food and drink industry currently comprises around 290,000 SMEs and employs around 2.8 million workers. This six-figure number accounts for approximately 99% of businesses in the entire industry, demonstrating the utmost importance of their continued development, growth and success. On the other hand, the UK registered around 7590 SMEs, accounting for around 78% of the entire sector and employing approximately 134,000 people. 

One of the most pressing concerns is the need to create a more sustainable, resilient and innovative food system for all. And SMEs in the food and beverage sector must stay on top of their competitiveness and continually adapt to changing circumstances to survive. Studies have shown that substantial investments are being made throughout the industry to improve energy consumption, reduce packaging and water and set emissions targets. And the EU only recently agreed to fund a €5 million digital transition project to help drive innovation.

Below, we explore some of the most significant challenges food industry SMEs face and the possible solutions that may help tackle and overcome these.

 

Structural barriers

Challenges

Studies have shown that substantial numbers of agrifood SMEs are mission-led, mirroring the shift in consumer demand towards more balance between people and profit. While this may indeed help with brand building amongst customers, SMEs often face conglomerate and government barriers when attempting new technologies and approaches in a landscape still needing drastic digitalisation along many parts of the supply chain. Looking within Europe, we see vastly different levels of digitalisation between countries and markets, making it even trickier because solutions must be highly localised. And arguably, Brexit and the recent outbreak of war in Ukraine only further deepened these cracks on a broader regional level.

Possible Solutions

Digital harmonisation — ideally helped by a shared digital vision supported, for example, by the strategic splitting of funds between EU Member States and a more robust digital infrastructure — is key to avoiding a further digital divide. Access to technology and rapid digitalisation are imperative. On an EU level, helpdesk support structures such as the Enterprise Europe Network and Your Europe Business or import and export portals, such as Access2Markets, can also help play a critical role in providing SMEs with the clarity and support they need to navigate the market and structural changes.

 

A fast-paced market and environment 

Challenges

Another big topic is the speed and continuity of change. Food trends come and go in the blink of an eye, and competition is fierce. While early adopters are swiftly rewarded, others may fall swiftly behind. Although SMEs may be more agile and flexible than larger corporations by nature, a lack of financial and human resources can also make it challenging to respond to change.

Possible Solutions

A big part of this is providing prospecting managers and young talent with the skills and know-how at the university level to better equip them to respond to the unique dynamics of the food industry. Looking toward older generations of the workforce, closing the digital skills gap is key to ensure that existing employees are able to work with the latest technologies. Of course, neither of these takes away from the need to have an intentional strategy in place to continually monitor, predict and respond to food industry trends so that SMEs can continually work to align their products with the needs of the market.

 

Accessibility to resources

Challenges

While good ideas and new innovations are great, penetrating new markets and reaching new customers is a different ball game. Financing, funding and expertise are vital resources which SMEs often lack to launch their product at scale. 

Possible Solutions

Research has shown that food SMEs require tailored business support to maximise their ability to survive and innovate. This includes helping small and medium businesses expand and leverage networks, providing access to specialists, providing access to resources, developing scale-up skills and providing specialist strategy training for the industry at large. 

Investing in human resources, in other words, people and skills, is also a top priority in times of insecurity and incentives, such as pay-rises and retention schemes, can help keep people on board. Also, open-source and industrial data platforms are key to promoting intra-sectoral communication and ensuring open and collaborative working environments that all parties can benefit from equally. On the financial front, low-barrier lending via fast credit scoring and digital platform-based loans, such as foodcircle Financing, pave the way for a bright road ahead.

 

Tackling climate change

Challenges

In light of the widespread greening of our food system, the focus on reducing emissions and transforming food supply chains has largely been on global players, leaving SMEs unaccounted for and entirely in the dark. 

Possible Solutions

Be it via financial support in the form of grants, access to recent technologies or simply a voice in the field, the focus needs to shift away from big players, and SMEs need to be included in all parts of this journey from the start. Pilot projects, like the SME e-wallet in East Flanders, which helps small businesses with subsidies for training, and Growing Green in the UK, which brings together actors from different parts of the supply chain to foster new sustainability synergies, are showing promising results.

 

Rising costs

Challenges

Businesses and consumers alike are faced with rising prices, paving the way for widespread energy poverty. Coupled with challenges like the war in Ukraine and the ongoing pandemic,  financial distress remains a genuine concern for many.

Possible Solutions

One of the keys to a healthy and stable business is maintaining a positive cash flow — this is precisely where innovative digital financing services come in. Thanks to pioneering platforms and technologies, such as foodcircle’s invoice financing, new peer-to-peer lending schemes, and industry-specific financing plans, food SMEs can obtain worry-free financing to help their businesses buckle up. 

Of course, with the continuing rise of inflation and energy prices, this is only one of several measures that SMEs can — and must — undertake if they want to stabilise their finances. The opportunity here is for a transition for SMEs to become the agents of change for Europe’s clean energy transition. Yes, this may mean higher investments to start with, but with Russia not looking to become a reliable and peaceful source of energy for Europe or any other part of the world in the near future, SMEs are likely to find more stability and sovereignty with alternative energy sources in the long run. Meanwhile, businesses are encouraged to review their energy consumption along their entire supply chain, look where they can become more efficient overall and cut back the overall energy consumption in the short term too.

Imagery: (1) Timon Studler, (2) Austin Distel & (3) Jason Goodman via unsplash.com