2022 – the perfect storm for F&B entrepreneurs
As any small business owner would know, managing your cash flow is essential to the success and sustainability of your business. Several crucible events recently have led to it being more important than ever for entrepreneurs in the F&B industry to review their financial systems and processes, including how to manage cash flow.
Below we walk through the main drivers of current challenges for F&B entrepreneurs. First, COVID-19, with its restrictions and closures, caused significant disruptions to F&B industry, with financial instability and cash flow challenges propelling up the value chain. Further, recent price increases, fuelled by inflation and the European energy crisis, have led to significant margin pressure for producers, distributers and wholesalers alike.
We are finding ourselves in the perfect storm for F&B businesses. Below, we cover each topic more in-depth, and finish off with what to do about it.
Covid-19 and its impact on the F&B industry
The COVID-19 pandemic had a significant impact on consumer-facing small and medium-sized businesses in the food and beverage industry. Government-mandated lockdowns and restrictions on dining in, led to large numbers of F&B services closing their doors, or pivoting to new business models, such as takeout and delivery. A study conducted by Square in partnership with Wakefield Research found that 52% of small businesses in F&B reported a decline in revenue during the pandemic, and 50% reported that they had to reduce employee hours or furlough employees.
Clearly, suppliers and distributors were significantly impacted on the revenue side by the significant drop in consumer demand. In addition, lockdowns impacted Food & Beverage supply chains across the globe, with delayed deliveries, increasing prices and labor shortages as a result. Nearly 70% of small and medium-sized food and beverage manufacturers reported difficulties sourcing ingredients, according to reports.
This double whammy led to a record amount of foreclosures in the F&B space, and we’re still seeing the effects linger in the market.
The ‘21-22 margin squeeze
F&B SMBs in the UK are also facing challenges related to the rising inflation and energy prices. The UK is currently experiencing the highest inflation rate in over a decade, with the consumer price index rising by 8.8% in January 2023, compared to 4.9% and 0.9% in the same month the previous two years, respectively, according to the Office for National Statistics.
Rising energy prices are particularly hitting the F&B ecosystem. A survey conducted by the British Hospitality Association found that 60% of hospitality businesses reported an increase in operating costs due to energy bills in 2021, with 38% of respondents citing energy bills as the biggest challenge they faced.
The combination of inflation and rising energy prices is putting pressure on the margin profile and profitability of F&B SMBs, being forced to absorb the increased costs or pass them on to customers through higher prices. This is particularly challenging for early stage businesses, who are more likely to face resistance from customers to raise prices.
What to do and how we can help
2021 and 2022 are clearly two years that have led to a challenging environment for F&B entrepreneurs. There are larger reasons than ever to ensure a healthy financial profile, review financial processes and ensure cash flow control.
Whether it’s through streamlining financial processes, improving access to working capital, or tapping into credit to negotiate volume discounts with suppliers, Mimo’s early customers are taking action to stay in control of their finances.
Mimo was started to help entrepreneurs in Food & Beverage navigate the ongoing economic uncertainty, and position themselves for future success. Let us know if you’re interested in learning more here.
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