08-05-2025
- Business
- The Herald Scotland
Hope yet for small food and drink firms in volatile markets
As a firm, we'd like to see ministers supporting the industry with sensible taxation, increased grant funding and greater trust in business owners, but we're also clear that operators must play their part with effective planning and forecasting, and a keen focus on cash flow.
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According to our research, labour (53%), raw materials (20%) and energy (12%) account for the industry's greatest costs.
Upcoming increases to the national minimum wage and higher national insurance contributions (NICs) are having a disproportionate impact on food and drink SMEs, where labour-intensive processes remain the norm.
The volatile energy market isn't helping. Rising and unpredictable energy costs are an ongoing concern, with more than one in 10 of our respondents citing energy as their biggest cost increase.
Meanwhile, raw ingredient supply chains remain turbulent. A mix of Brexit-related import challenges, global commodity fluctuations, and climate change-related crop issues are creating ongoing uncertainty for producers.
After cocoa prices surged to their highest level in 50 years, driven by crop diseases and adverse weather, many chocolate producers are now more familiar with the weather forecast in West Africa than where they are going on their next family holiday.
Despite the pressures, there are clear routes forward for SMEs willing to take a proactive, strategic approach.
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While more than half of our respondents have not to date pursued automation, it is becoming an increasingly important – and affordable – tool as technology progresses. By investing in automated production, packaging, and quality control systems, SMEs can reduce their reliance on manual labour and ensure their people are carrying out meaningful, high value work.
In a crowded marketplace, a strong brand can help SMEs shift from price-takers to value-setters. Businesses that articulate their value through branding, storytelling, and digital marketing are better equipped to demand a premium price and encourage customer loyalty.
A tight labour market has evolved post-Covid and it's essential that SMEs get the best from their people amid a high-cost environment. Encouraging a positive workplace culture and implementing strong performance management frameworks — including clear goals, recognition, and development opportunities — will help to boost morale and productivity.
For some businesses, scale could be the solution. Larger operations benefit from bulk buying and broader distribution, and are better-positioned to survive shocks in the supply chain.
Organic growth options include expanding product lines and entering new markets, with export ranking as the primary driver of growth in our survey, but mergers or acquisitions can also drive new capabilities and customers. This year has already seen consolidation in the marketplace, including Dean's of Huntly's acquisition of Duncan's of Deeside Limited, bringing together two respected shortbread brands to pursue fresh growth.
The outlook is undoubtedly tough, but UK food and drink SMEs still have a sustainable future. Through investment in automation, brand development, culture and scale, they can transform vulnerability into opportunity.
Graham Marjoribanks is a partner and head of audit at Johnston Carmichael.
