How to mitigate high production costs for SMEs in the food and beverage sector

The difficulty sourcing certain ingredients and significant rises in energy bills have squeezed the bottom line for most, if not all, businesses in this sector. Those in, or looking at contracts with large retailers, such as supermarkets and wholesalers, are experiencing increased pressure as they refuse to share the burden of cost or increase product pricing.

All of this financial pressure is squeezing producers; forcing them to either absorb these costs or review pricing with their buyers. Following a pandemic and Brexit supply chain bureaucracy, as well as currently heading into a recession, this could be the last straw for many smaller-scale producers in the food and drink industry. However, there are ways to mitigate these rising costs, by utilising innovative digital transformation of business processes.

In this blog, we offer a key cost-saving strategy for these struggling businesses, having supported many producers in the F&B sector over the years. Read more to find out how food and beverage (F&B) producers can offset their high production costs in other areas of the business.

The food and beverage industry, particularly in the UK, has faced several major challenges over recent years. Some of which, you will be familiar with. Brexit and the COVID-19 pandemic had a significant impact on how food and beverage producers have been able to run businesses. However, there are also other factors that have come to light more recently.

The war in Ukraine has also had a huge impact on certain areas of the F&B sector. Ukraine is one of the largest suppliers of grain globally, exporting 36% of the world’s wheat.¹ Due to the ongoing conflict, Ukraine has been unable to provide the raw ingredients required for many food and beverage products. With the demand far-outweighing the supply, this has had a huge impact on the cost of these ingredients. Producers in the food and beverage industry have been forced to outsource these ingredients from other suppliers at an inflated cost, therefore, further contributing to their high production costs.

Additionally, energy bills have risen dramatically in the UK since the change to the price cap in March, increasing by 54%.² These are expected to increase again by approximately 82% in October. This is affecting households as well as businesses, which are all having to factor in significant increases to the running costs of their heating, lighting, and machinery. For producers in the F&B sector, these changes are a major contributor to their high production costs.

To top all of this off, the Bank of England has recently forecast a recession.³

With high production costs and lower consumer buying power, many smaller producers in the food and beverage industry are in a bind. So what do food and beverage producers do during a period of high production costs?

One solution that many food suppliers have turned to when experiencing high production costs, is to increase the purchase price of their goods for retailers. The retailers, who are not willing to cut into their own profits, then increase the shelf price of the goods for the end consumer. However, there are potential risks by taking this approach. With the cost of living crisis at the forefront of people’s minds, food and beverage manufacturers need to be wary about passing on the additional costs to the end consumer. This comes after larger food and beverage producers, such as Kraft Heinz and Mars, have been at odds with large supermarket chains regarding this very issue. Smaller food and beverage business do not have the kind of leverage to negotiate on pricing with larger retailers. SME producers in the F&B sector are still stuck with high production costs that continue to rise.

If producers in the food and beverage sector are hesitant to increase their product prices in line with their high production costs, then what other options do they have to manage the financial squeeze?

Ultimately, food and beverage producers need to be reviewing every aspect of their supply chain, as there will be opportunities for improvement and savings to be made. Time-consuming and costly manual processes are common within smaller business operations. They are not an efficient use of resources, but now there are accessible and affordable options for smaller businesses to benefit from. The digital transformation of business processes with EDI has the ability to mitigate the affect of rising costs for businesses.

Here at Transalis, we have supported many food and beverage businesses, creating process efficiencies, and saving costs with our digital transformation solutions. Particularly for SME food and beverage producers that have contracts with large retailers, it is a crucial time to ensure EDI compliance.

Many supermarkets and wholesalers mandate the use of EDI, as Shaken Udder discovered. Therefore, food and beverage producers that are looking to expand into these larger markets, should first look at digitising their order processing. EDI capability offers complete automation and digitisation of business processes. This results in a more efficient supply chain, with minimal errors, and significantly reduced overhead costs.

We want to support all businesses with our supply chain solutions. We have a range of bundled options to suit all business needs in the F&B sector.

Take a look at our EDI solutions or contact our team directly to discuss your unique business needs.