© 2014 grant thornton ireland. the economics of the artisan taste council of ireland summer school...

© 2014 Grant Thornton Ireland.

The economics of the artisanTaste Council of Ireland Summer School 2014

Ciara JacksonHead of Food & BeverageGrant Thornton

August 25 2014

© 2014 Grant Thornton Ireland. All rights reserved..

Agenda – the economics of the artisan

01 The Irish marketplace02 A global village or a big world?03 The third way04 Capital & funding0506

PricingSupply chain & route to market

07 Leveraging the value of Irishness08 Consumer insights09 Conclusion


The Irish marketplace


What is an Artisan?

'Artisan foods are products created with a greater focus on the uniqueness of each ingredient, offering freshness, novelty and a sense of being close to the producer.'

Source: Ask About Ireland

'Artisan is descriptive of a food that is unique, usually hand made with a distinctive taste and flavour and with it’s own ‘persona’ which can cover a range of products such as breads, meats, cheeses, preserves and produce.'

Source: Teagasc

'Artisan food is a test of 4P’s, ‘it is a synthesis of the Personality of the producer, the Place it come from, the Product itself and Passion in the manner it is produced.'

Source: Irish food writer John McKenna

'Traditional or traditionally made, mostly in batch sizes using hand-done techniques which encompasses flavour, tradition and the integrity of the producer.'

Source: Zingerman’s speciality food


Definitions

'The terms “artisan” or “artisanal” or similar descriptions using these terms should only be used on foods that comply with the general legal rules governing the use of marketing terms and in addition can legitimately claim to have all of the following characteristics:

1. the food is made in limited quantities by skilled craftspeople

2. the processing method is not fully mechanised and follows a traditional method

3. the food is made in a micro-enterprise at a single location

4. the characteristic ingredient(s) used in the food are sourced locally, where seasonally available in the required quantity'

Source: The Irish Food Guide Blog


The Irish Artisan marketplace

Act Smart. Think Green. Achieve Growth.

Fast facts• €24bn turnover• export to 175+ countries• 145,000 direct jobs• 230,000 jobs linked to the sector• 2/3's of exports by indigenous Irish

companies

2011 2012 2013

Exports €8.5bn €9.1bn €10.0bn

26%

42%

32%

Destination of Irish exports 2013

Rest of the world

United Kingdom

Continental Europe

Fast facts - Artisans• €475m turnover• 350+ small, local, speciality food

businesses• 47 cheese producers, 127 varieties• < 1% of farms produce artisan food


Ireland Inc – competitive and comparative advantage?

Ireland Inc has...• a healthy, well educated nation• a positive reputation globally• a well established culture of entrepreneurship• an extremely successful indigenous Food and Drink sector, known for

– food safety and food provenance– high quality local suppliers– green pastures, clean blue seas– grass fed livestock

• capacity, capability and business environment to support R&D and product development

• advantageous (and much envied) low tax regime• a state that is fully engaged in supporting the Food and Drink sector


Traditional business model

• local ingredients and/or supply, traditional production process• often a family business• low volume, high quality branded, unique product• modest income levels generated, limited profitable growth potential

Lifestyle

(Artisan)

• enter significant supply chains, grow supply base to more multiples• ramp up (and in many cases automate) manufacturing facilities• develop new complementary products (possibly private label)• expand team, professionalise structure• generate cash flow to fund growth, begin exporting

Scaling

• focus on acquiring new customers, entering new markets• often a change in structure (from family owned to Plc)• strategic growth plans in place supported by M&A strategy• international focus

Global


Off-load (or revive) distressed business

units

Develop the next generation of leaders

Enhanced distribution channels and product

portfolios

R&D and NPD launches

Open new routes and channels to markets

and customers

Raise capital and investment

Scaling capability as a core competence

Build resilience to supply chain shocks

Supply chain efficiency

Cost savings

Mitigate market and price risk and volatility

Scale: the conventional route to profitable growth


A global village or a big world?


The world is changing

• global population growth – expected to be 9 billion by 2050

• life expectancy and retirement age increasing

• increased focus on food safety post #horsegate

• technology changing how, when and where we shop

• rise of the middle classes in the emerging economies– rural/urban shift– change in diets


Mega-scale in the meat sector


Mega-company dominance in global supply chains

• less than 20 companies process approximately 25% of global milk supply

• 4 companies account for between 75% and 90% of the global grain trade

• 10 companies are responsible for over 40% of the global retail market

• 7 companies control virtually all fertilizer supply

• of the world’s 15 most important commodities, 300-500 companies dominate 70-80% of these, with 100 of these companies

controlling 25%


The illusion of choice


The third way


Key business challenges for artisans – my top 3

1. access to finance

2. cost of doing business in Ireland

3. small is often difficult:• power of the multiples• transport and logistics• availability of talent• finding new customers• product development• exporting• time to do the accounts (and everything else)!


Is there a third way?

The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.

Rupert Murdoch


Artisans say YES! :strong financial performance metrics

Consistently over the last 3 years:• sales are growing: more than 95% of members expect turnover to

increase or remain the same • profit targets are being achieved: each year, four out of five

members surveyed have achieved their profit targets • the future is bright: more than 80% of members expect earnings

stability and growth in the next financial year

Good Food Ireland members 2012 2014

Generate combined turnover €390m €638m

Directly employ >5,900 6,200 full time

3,100 part time

Contribute to the Irish economy through purchase of Irish produce

€50m €64.5m


Capital and funding


Average breeds average

Poor financial performance

Average financial performance

Strong financial performance

Limited funding options

Mediocrefunding options

Wide range of funding options


Working capital management

Overdraft

Term Loan

Loan from friends/family

Credit Card

Invoice discounting

Other

0% 10% 20% 30% 40% 50% 60% 70%

65%

29%

10%

21%

7%

17%

Facilities used to manage working capital


Alternative sources of funding

• private equity• venture capital• seed capital• development capital• angel investor• grants• EIIS (BES)• private individuals• invoice discounting• crowd funding• family and friends


How to improve funding potential?

• tight working capital management & cost control

• review existing funding structure– fixed v variable rates– short term v long term requirement– fixed v flexible amount

• Independent Business Review (IBR)

• create margin through price

• dynamic and evolving business plan in place


Pricing


Pricing

Tactical(day to day)

Strategic(long term)

Pricing plan: critical for success


Setting price and creating value


Setting price and creating (a perception) of value

$195,000 buys the world's most expensive bottle of wineThe Le Clos wine shop in Terminal 3 of the Dubai International Airport is selling three Balthazars (12-liter bottles) of Château Margaux 2009 priced at $195,000 each.

Source: Eater, October 2013

@ Gucci

Purseblog.com (Spring 2014)• Gucci soft stirrup crocodile

shoulder bag• RRP $32,500Source: Pursebolg.com

Photo: Le Clos


Pricing – a route to profit?

Traditionally, business grow profits by a combination of:• selling more• cutting costs

Is it possible to create and grow profit through price advantage?• increase a customers willingness to pay

Pricing techniquesBundled Premium Dynamic Value based Loyalty

Loss leader Predatory Marginal cost Incremental Absorption

Freemium Value based High-Low Target Psychological


Supply chain and route to market

© 2014 Grant Thornton Ireland. All rights reserved.. 24

Supply chain complexity


Supply chain – Co-Op Model

Case Study: Irish Food Co-op • launched 25 July 2014

• brings together seven producers from the south east region under a mantra of “one invoice, one contact, one delivery”

• the seven producers have joined forces to maximise their sales and distribution as a not-for-profit cooperative


Social media as a sales channel

Importance of social media to Good Food Ireland approved providers

2

6

3

5

3

12

7

6

24

24

23

24

18

23

19

26

50

30

43

34

0 20 40 60 80 100 120

Raise business awareness

Generate sales

Increase customer base

Encourage focus on local/Irish produce

Least important Neither important nor unimportant Important Very important Most Important


International growth online

18%

17%

31%

13%

21%

Extremely importantVery importantImportantNeither important nor unimportantNot important

How important is it for your online business to grow international sales?


Leveraging the value of 'Irishness'


'Irishness' has a value- we can capitalise on it!

Going beyond simply buying Irish to offer a

genuine Irish experience to the consumer is what lies at the heart of true

‘Irishness’


Think local and Irish = think quality

9 out of 10 Good Food Ireland members believe:• local Irish food is an integral part of

Ireland's international business growth • increased marketing of food in tourism

as an important factor to sustain growth in their business

• local Irish food is a strong economic driver for their business

• the food sector plays a crucial role in driving growth in associated sectors


Brand Ireland

92% of Irish F&B businesses believe that as a nation we

should have a clearly defined and licensed Irish food

brand

Grant Thornton Hunger for Growth Global benchmarking study 2013


Consumer insights


Changing consumer behaviour

• consumers placing an increased focus on quality, provenance, locally sourced food and shorter-supply chains

• cheap does not mean value for money - it just means cheap

• 68% of Irish consumers consciously purchasing local food to support the economy

• 69% rate "the use of Irish/local" as important when going out for a meal

• In UK More than 50% of consumers changed their shopping habits, 1/3 buying less processed foods


The evolving consumer

'The more affluent'

Polarised consumer behaviour

'The budget conscious'

'The budget conscious'

Co-existing consumer values

'The more affluent'

Businesses should use their provenance confidently and with pride.


Yesterday's niche markets are today's new trends

Food trends affecting companies in next 12 months


Clicks -v- bricks: smart customer targeting

Kerrygold generation Smash generation Marathon bar generation

Red Bull generation

• age 55+ • age 34-54 • age 25-34 • age 0-25

• 22% pop. • 28% of pop. • 16% of pop. • 34% of pop.

• embracing technology at faster rather than previous generations

• dual careerists• heavily indebted• 'cash rich and time

poor'

• likely to be still living at home

• technology savvy instant access generations

• always connected, always online

• brought up with internet, embrace technology

• use the internet 21% of the time (every day or almost every day)

• staycations in Ireland• increasingly

purchases goods online – Tesco click and collect, Nightline's Parcel Motel

• use the internet 78% of the time (every day or almost every day)

• low income levels

• purchasing decisions influenced by social media, blogs, price comparison websites


ConclusionAs Michael Porter says in The Competitive Advantage of Nations (1998), 'there are two ways to be competitive in a global economy':

1. being the lowest cost supplier of an undifferentiated commodity

2. providing the market with a unique and superior value in terms of product quality, special features or after-sales service


The smart ingredients for success

Collaborate.

Collaborate.

Collaborate.

Sound business and financial

planning

Top quality, differentiated

product

Leverage multiple routes to market

Driving profitability and growth


Thank you

Questions and feedback

Ciara JacksonDirector, Head of Food and BeverageE [email protected] +353 (0)1 680 5640

© 2014 grant thornton ireland. the economics of the artisan taste council of ireland summer school...

Documents

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