Food and drink SMEs need to join forces on buying

The UK food and drink industry is navigating a challenging economic landscape. Inflationary pressures and increasing operational costs are squeezing SMEs like never before. Add to that an unspoken size penalty, and challenger brands are paying more than ever per kilo for raw materials than their big brand counterparts. In fact, in many cases, it’s more than double the price. 

Rapeseed oil, for example, costs £1.67 per kilo at small business order volumes, but drops to around 82p per kilo for corporate-level quantities. This disproportionate pricing is a major obstacle for smaller brands, eating into their already tight margins and pushing many into survival mode.

Yet, amidst these challenges, there lies a significant opportunity that could redefine the success of many brands: collaboration. By coming together, SMEs can leverage their collective buying power to achieve substantial cost reductions and operational efficiencies.

Buying in larger quantities is a well-known method to achieve cost savings. By banding together, SMEs can pool their orders to unlock significant price breaks, similar to those enjoyed by big brands. This concept is akin to a “buyers’ club” for food and drink, in which hundreds or even thousands of small brands combine their purchasing power to negotiate better deals. Such collaboration can reduce ingredient costs by up to 40%, leading to a 10% reduction in the cost of goods sold for some businesses.

The benefits of a buyers’ club approach extend beyond mere cost savings. SMEs can also streamline their operations by consolidating suppliers for high-demand ingredients. This reduces logistical complexities, minimizes stockouts, and improves quality control. By freeing up resources, brands can focus more on core competencies such as marketing and product innovation.

UK businesses have historically lagged behind in fostering a collaborative culture compared to countries like the US. The food and drink sector across the pond is more open to collaboration, with brands frequently sharing suppliers and logistical solutions.

Even in the US tech sector, highly competitive challengers in Silicon Valley thrive on a culture of sharing resources and knowledge, leading to mutual growth. We see evidence of this in how they collaborate to embrace and test innovation. This cultural mindset is something the UK industry must adopt to compete on a global scale.

By embracing a collaborative approach and leveraging the power of the community, SMEs can transform their individual successes into a broader industry triumph, fostering a more robust and resilient market and, ultimately, redefining their growth story.

While the benefits of a buyers’ club are clear, the decision ultimately lies with each business. Will they continue to struggle independently, or will they seize this opportunity to collaborate and thrive? The future of the industry may well depend on their answer.