SMEs are not bound by corporate structure and are therefore flexible to respond to market changes quickly and innovate accordingly with many eyeing the premium, niche segment, according to industry expert.
SMEs represent a sizeable share of the European 310,000 strong food and drink industry, at 99.1% and contribute to around 48.2% of the €954bn annual turnover, according to FoodDrinkEurope (FDE).
The industry association describes SMEs as the “backbone” and “fabric” of industry and champion and support growth and success among these businesses.
Steve Osborn, business innovation manager at Leatherhead Food Research, said that SMEs have many advantages over larger, multinationals as they are not bound to a corporate structure.
“They have that flexibility and nimbleness in manufacturing to be able to be responsive to changes in industry,” Osborn told FoodNavigator.com.
“Therefore, in some ways they can be the innovators of industry; responsive to trends and market changes,” he added.
Innovative challenges among industry heavy-weights
Osborn noted that this ‘advantage’ can drive success in new product developments (NPDs), innovations and targeting specific market segments.
“SMEs are able to respond quickly and champion innovations,” he said, although one major set-back is often financing and thus the commercialisation of these products; something multinationals have little trouble with.
Angela Colesholl, director of competitiveness at the Food and Drink Federation (FDF), has called for government support across the UK’s food and drink sector, in the form of R&D tax incentives and non-bank financing to drive innovation among SMEs.
Osborn added that SMEs can often be “quite naïve” to some of the regulatory boundaries of the industry; and “this can be quite restrictive”. He used the example of navigating the complex health claim and novel foods requirements.
Within the last two years, there has been a “clear shift” in SMEs, especially start-ups, eyeing the premium, niche food and beverage market segment, Osborn detailed.
Start-ups are looking to add value to a commoditised market that is saturated with basic, value brands, he said, and there is space in the ‘better than’ segment that “they are in a position to exploit… whereas the big brands are bound by rigid structures.”
He noted that regulatory controls had also contributed to this shift towards premium as the previous trend of functional foods had been tempered due to an increase in regulation on health claims.
“With premium products, making a point of difference just requires a sensory claim or consumer claim and is therefore simpler,” he said.
A recent European Commission report entitled ‘SMEs, resource efficiency and green markets’ noted that 93% of EU SMEs are taking at least one action to be more resource efficient but it found that overall they are lagging behind larger firms in resource efficiency.
Osborn said that the ‘going green’ trend could be a challenge for established SMEs.
“Sustainability and energy resource efficiency is not going to be cheap, and it will require many changes to manufacturing processes. It might be prohibitive,” he said.
He noted that larger companies are better equipped to respond and make green changes but start-up SMEs could hold an advantage in the green manufacturing sector.
“These start-up SMEs will absolutely be ‘going green’ from the start, there won’t be a choice in the matter,” he said, add to this the element of flexibility they have by nature, and this could be a market area new SMEs will succeed in.