Agenda – the economics of the artisan

1. The economics of the artisanTaste Council of Ireland Summer School 2014Ciara JacksonHead of Food & BeverageGrant ThorntonAugust 25 2014

2. Agenda – the economics of the artisan

3. The Irish marketplace

4. 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

5. 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: • the food is made in limited quantities by skilled craftspeople • the processing method is not fully mechanised and follows a traditional method • the food ismade in a micro-enterprise at a single location • the characteristic ingredient(s) used in the food are sourced locally, where seasonally available in the required quantity' Source: The Irish Food Guide Blog

6. The Irish Artisan marketplace • 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 • Fast facts - Artisans • €475m turnover • 350+ small, local, speciality food businesses • 47 cheese producers, 127 varieties • < 1% of farms produce artisan food Act Smart. Think Green. Achieve Growth.

7. 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

8. Traditional business model

9. Scale: the conventional route to profitable growth Off-load (or revive) distressed business units Mitigate market and price risk and volatility Enhanced distribution channels and product portfolios R&D and NPD launches Cost savings Raise capital and investment Open new routes and channels to markets and customers Supply chain efficiency Build resilience to supply chain shocks Scaling capability as a core competence Develop the next generation of leaders

10. A global village or a big world?

11. 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

12. Mega-scale in the meat sector

13. Mega-company dominance in global supply chains • less than20 companies process approximately 25% of global milk supply • 4companies account for between 75% and 90% of the global grain trade • 10 companies are responsible for over 40%of the global retail market • 7companies 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%

14. The illusion of choice

15. The third way

16. Key business challenges for artisans – my top 3 • access to finance • cost of doing business in Ireland • 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)!

17. 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

18. 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

19. Capital and funding

20. Average breeds average Poor financial performance Average financial performance Strong financial performance Limited funding options Mediocre funding options Wide range of funding options

21. Working capital management Facilities used to manage working capital

22. 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

23. 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

24. Pricing

25. Pricing Tactical (day to day) Strategic (long term) Pricing plan: critical for success

26. Setting price and creating value

27. Setting price and creating (a perception) of value $195,000 buys the world's most expensive bottle of wine The 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 • Purseblog.com (Spring 2014) • Gucci soft stirrup crocodile shoulder bag • RRP $32,500 • Source: Pursebolg.com @ Gucci Photo: Le Clos

28. 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

29. Supply chain and route to market

30. Supply chain complexity 24

31. 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 Supply chain – Co-Op Model

32. Social media as a sales channel Importance of social media to Good Food Ireland approved providers

33. International growth online How important is it for your online business to grow international sales?

34. Leveraging the value of 'Irishness'

35. Going beyond simply buying Irish to offer a genuine Irish experience to the consumer is what lies at the heart of true ‘Irishness’ 'Irishness' has a value- we can capitalise on it!

36. 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

37. 92% of Irish F&B businesses believe that as a nation we should have a clearly defined and licensed Irish food brand Brand Ireland Grant Thornton Hunger for Growth Global benchmarking study 2013

38. Consumer insights

39. Changing consumer behaviour • consumers placing an increased focus on quality, provenance, locally sourced foodandshorter-supply chains • cheap does not mean value for money - it just means cheap • 68% of Irish consumers consciously purchasinglocal 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

40. The evolving consumer Polarised consumer behaviour 'The more affluent' 'The budget conscious' Co-existing consumer values 'The budget conscious' 'The more affluent'

41. Yesterday's niche markets are today's new trends Food trends affecting companies in next 12 months

42. Clicks -v- bricks: smart customer targeting

43. Conclusion As Michael Porter says in The Competitive Advantage of Nations (1998), 'there are two ways to be competitive in a global economy': being the lowest cost supplier of an undifferentiated commodity providing the market with a unique and superior value in terms of product quality, special features or after-sales service

44. The smart ingredients for success Sound business and financial planning Top quality, differentiated product Leverage multiple routes to market Collaborate. Collaborate. Collaborate. Driving profitability and growth

45. Thank you Questions and feedback Ciara Jackson Director, Head of Food and Beverage E ciara.jackson@ie.gt.comD +353 (0)1 680 5640