Challenges for SMEs in building sustainable food systems
November 17, 2021
Small and medium-sized businesses (SMEs) are leading a quiet revolution in the food and beverage sector as they work to transform and rebalance food systems around the world. That being said, they may face considerable disadvantages that multinationals do not, preventing them from developing their businesses, experimenting with innovative processes and realizing profitable sales. Below are a few examples of challenges to anticipate.
Supporting an inclusive and sustainable economy. Within the food and beverage sector, sustainability begins with agriculture and sourcing. To what extent does the SME seek partnerships, and commercial agreements more broadly, that empower farmers and other producers of raw materials, such as by increasing stable production cycles and predictable income streams? To what extent does the SME favor working with cooperatives that build alliances among farmers and other producers of raw materials, thereby allowing them to face competition from multinationals and other companies that have significant purchasing leverage?
Allocating supply chain resources. While successful supply chain management is a fascinating and complex exercise, it is essentially a question of allocating resources in an efficient and flexible way. This includes sourcing raw materials, food production, transportation and logistics and distribution through wholesalers and retailers. While new technologies have brought greater precision and traceability to the industry as a whole, successful supply chain management for SMEs requires taking a tailored approach to production that is likely to be less automated—mastering one’s own model with precision, particularly as it relates to allocating manufacturing capacity and anticipating shortages, competition and bottlenecking.
Managing risk and sustainable impact. Successful food systems also require successful risk mitigation. This includes risks of a more commercial nature—including commodity risk, procurement risk, pricing risk, credit risk and contractual risk—as well as operational risks, health and safety risks and risks of market and season cyclicality. In addition, SMEs in the food and beverage sector are increasingly expected to take initiatives that support improvements in human health, climate change, energy and water consumption, waste and animal welfare. Regular operational audits and risk reviews will allow the SME to take a proactive approach to risk mitigation. Understanding the business model, and its impact across all groups of stakeholders, will allow the company to take targeted efforts to improve its overall footprint from an environmental perspective.
Marketing and informing consumers. To better support customer growth, SMEs need to also anticipate an agile sales organization that provides the opportunity to inform consumers, build one-on-one relationships and illuminate their points of difference. In addition to catalogs and websites, SMEs need to anticipate other opportunities to market their products, equipment and accessories covering a wide range of price points. Whereas bigger brands can rely on external certifications and labels, smaller brands may need to find other ways to convey the sustainable impact of their approach to customers. Both qualitative and data-driven approaches are necessary.
Managing a varied product offering. Another point to consider is the way that the company manages its product portfolio on an ongoing basis. Are higher margin products well marketed and presented? To what extent does the SME’s lower-margin products detract from them? To what extent does the company’s marketing strategy focus not merely on selling more volume but achieving the desired balance of margins? For SMEs, inventory control is of particular importance and constant attention must be given to ensuring that manufacturing capability is being organized in a way that supports both sustainability and commercial goals.
The strategies for SMEs here are multiple, as are the challenges. How can SMEs in the sector control production costs while seeking to increase sales cycles and lower storage and marketing costs, helping deliver products to consumers at the lowest possible cost? How can they preserve efficiency gains that have been achieved without sacrificing the concepts of proper nutrition, natural capital, equity and flexibility? How can they leverage their ability to provide employment at a living wage, thereby raising the level of aggregate demand for consumer and investment goods from a broader macroeconomic perspective?
CPM
