Why are most food and drinks businesses failing?
Why is it so important to support local and craft producers? 90% of all food and drink businesses fail in their first few years as they struggle to compete with the cost of marketing and sales against the large guys. We’re fighting against chains and large groceries and are passionate about making sure these incredible independent producers and chefs win out! We teamed up with Bread and Jam to conduct the first industry wide survey to find out why these businesses are failing and how we can help.
Starting a food or drink FMCG brand is a tough business — each day 45 new food and drink products are launched onto the market and only five of these products will still exist in two years’ time.
96% of businesses in the food and drink sector are SMEs and together they employ more than 400,000 people in the UK. Yet little is known about the common challenges that small and medium sized food business face. Tabl and Bread & Butter collaborated on the first industry-focused survey of food and drink brands in the UK to identify the factors that cause failure.
Money is the biggest issue that they face. The three biggest challenges for emerging food and drink businesses are:
- Funding (44% struggle with this).
- Cash-flow (39%).
- Getting distribution (35%).
Banks won’t give them money, so they first turn to family and friends. Nearly 40% of businesses look for funding from banks pre-launch, but less than 11% have secured bank financing within two years. They are 3 times more likely to get financial backing from friends and family than from banks.
“Payment terms are tough and our cash flow cycle is always against us so we’ve had to look at friends and family to bridge the gap.”
Will Breaky, Dr Wills
Then they turn to crowdfunding. Crowdfunding is the most desired way to raise funds across all stages of a food business (46% want to use this method).
“I wouldn’t go to a bank — it’s an outdated way to get finance with high, unaffordable rates. For me it seems logical business wise and enjoyment wise to crowdfund — reaching tonnes of people and spreading your message.”
Mike Duckworth, Nutcessity
“I wasted a lot of time, energy and money on our crowdfunding campaign, and to be honest is was a public humiliation when we didn’t hit our target.”
Anonymous food entrepreneur
Sales and distribution are important, but most entrepreneurs are confused how to grow their business and the current economic climate causes confusion and fear.
Only a third of new businesses want to sell online, but in reality, it becomes an essential sales channel for 70%.
More than half of pre-launch businesses (54%) aspire to be on the supermarket shelves, but only 15% manage to achieve this in their first 2 years of business (climbing to 36% after 3 years).
The importance of exporting as a revenue stream is also often misunderstood. Only 8% show interest in exporting before their business has launched. Yet following supermarkets, it is the second most desired channel (50% want to export) post launch.
Brexit concerns. Of those that are currently dependant on exporting 57% are worried about how Brexit will affect their business. This does not end with sales but also stretches to currency exchange, legislation, raw material costs and staff.
However, it’s not all doom and gloom. 9 out of 10 food & drink entrepreneurs are optimistic or very optimistic about the future of their business.
The key to success is to understand reasons for failure; to learn the pitfalls from a community of supportive and engaged entrepreneurs. Tabl is working to build communities to do just this.