SMEs: The quiet engine of the F&B industry

Many big food brands are household names – and it’s those incumbents that usually hit the news when something goes right (or wrong) in the food and beverage industry. But small and medium-sized enterprises (SMEs) are crucial to the industry; acting as the quiet engine that drives growth, creates employment opportunities, and creates new markets. 

Why are SMEs so important to F&B? 

Because they’re agile, adaptable, and they make things happen. They test new markets that are often then swept up by bigger businesses, and they’re critical for local economies and communities. 

As an engine of growth, SMEs are important contributors to job-creation. According to research by McKinsey, a significant share of the world’s population works for an SME – between 50% and 90% of the national labour force, depending on the country. 

From an innovation perspective they also drive change: they’re small and agile enough to try out new ideas quickly, and to fail fast without devastating economic losses. Often headed up by passionate entrepreneurs, SMEs are creative and keen to explore the boundaries of what’s possible. Without legacy systems and the bulk of large-scale operations to hold them back, they can think on their feet and approach key business problems with fresh eyes. 

But even the less adventurous SMEs are critical for the health of the F&B industry and to local and national economies. These are the businesses that keep things going: creating a population of semi-skilled workers that go on to support industrial expansion. 

One of the important functions of SMEs is that they’re deeply connected to their markets and their communities. This means they really understand their customers – and that understanding feeds back into the F&B industry as a whole, as well as enabling SMEs to be resilient during challenging economic periods. 

And they also drive growth for non-urban economies

Outside of major cities and towns, SMEs in the F&B space create a sense of community and enable economic growth. They bring people together – creating places to go as well as places to work, and sometimes helping their area develop a reputation as a sought-after food-producing region. 

They enable more equal distribution of income throughout countries by generating economic prosperity in non-urban areas. And this isn’t just good for the immediate locality; it also makes the wider marketplace more dynamic. 

But SMEs struggle with unmet needs

According to Gonzalo Guillén Benjumea, writing for FoodDrinkEurope, SMEs represent 99% of all businesses in the European Union. They employ approximately 100 million people and generate over half of the continent’s GDP. There are more than 290,000 SMEs in the food and beverage industry in the EU, employing about 60% of the industry’s workforce. 

In the Middle East and Africa region, 2021 research by Mastercard found that 76% of SMEs in the F&B and entertainment sector were optimistic about the coming year, with nearly half (47%) projecting revenue growth. 

In markets around the world, SMEs are central to F&B growth and innovation. But it’s not an easy industry to carve out (even a little bit of) space in. As McKinsey’s research alluded to, open markets and business-friendly ecosystems help large companies thrive; but SMEs struggle with ‘unmet needs’. 

Their smaller size means it’s difficult for SMEs to access resources and support that would allow them to become more productive – including talented professionals at the cutting edge of their field; emerging technologies; finance opportunities; and operational and managerial practices. 

And a large number of SMEs are relatively young, which makes it difficult for them to compete with big market players. When an SME taps into a new market and creates a successful product line, it’s often not long before a large incumbent sweeps in, recreates their top product at a larger scale and lower cost, and takes control of that ripe new market – because they have the funds and operational backing to do that. 

Creating positive conditions for SMEs to thrive

Because of these challenges, the majority of G-20 countries have launched national agencies that are focused on supporting the growth of SMEs. But like the SMEs they’re supporting, these agencies are small and hard-pressed to meet the diverse needs of the businesses.

So what can be done? 

Both government and non-government agencies need to engage in research to understand the SME ecosystem more clearly, and use that understanding to serve them appropriately – with diverse, tailored support instead of a one-size-fits-all approach. 

SMEs need more confidence that they have the capacity to make it in regional and global markets. They need protections to help them differentiate their products and stay competitive; and they need the space to grow.