Artisan boom sees SMEs post strong margin growth
UK SME food and drink manufacturers’ profit margins have grown to 6.8% in the past year as the artisan food boom continues to fuel their profitability, says EMW.
The commercial law firm notes that profit margins of SME food and drink producers rose from 6.1% in 2014/15 and just 3.1% in 2013/14, thanks to consumers’ growing willingness to pay premium prices for products seen as being higher in quality.
The firm points to the success in recent years of craft brewers such as Meantime, Camden Town and Brewdog, and gin distillers Warner Edwards, Sipsmith and Portobello Road as examples of artisan British brands that have become significant players in their markets.
British consumers are now also more comfortable in spending more on super premium products as they focus more on quality than previous generations, the company says. This has allowed smaller manufacturers of these products to, in many cases, charge higher prices than their mass market rivals.
Smaller manufacturers are also better positioned to take advantage of the rising importance of locally sourced produce, with more and more consumers viewing the reduction of ‘food miles’ and geographical designations as key considerations when buying premium products.
EMW points out that strong margin growth among smaller British food and drink manufacturers contrasts sharply with the problems encountered in recent weeks by multinational food producers. Unilever recently resolved a pricing dispute with Tesco over Marmite, after sterling’s weakness against the Euro increased import costs and compressed margins, and briefly threatened to see Marmite taken off the shelves.
The firm adds that while some SME manufacturers will encounter a currency challenge following Brexit, this will be less pronounced for those that do not import a significant amount of raw materials from overseas.
Ian Morris, chairman of EMW, comments, “The average British consumer has much more sophisticated tastes than even 10 years ago, and the UK’s smaller ‘artisan’ food and drink manufacturers have seen their profit margins grow strongly as a result. Food is one of the fastest growing areas of luxury spending.
“More customers than ever are willing to pay higher prices for products perceived as offering something more than a mass market brand does. That means they are happy to seek out more niche products and buy from small businesses.
“Having a ‘locally sourced’ label also helps in attracting buyers who are conscious of the carbon footprint of their food, which is a growing priority, especially for younger consumers. The growth and profitability in the sector in turn making those SME food and drink producers attractive as takeover targets for larger rivals.”