Food & Drink Industry: Adapting to the Next Normal

*Updated 13 August 2020*

2020 has presented unprecedented challenges to the Scotland food and drink sector, however the agility, innovation and resilience demonstrated by many Scottish businesses has been one of a few positives. The effects of the pandemic and national lockdown have impacted each business differently; with some businesses being forced into a stand-still whilst others have experienced a surge in demand.    

One fundamental consequence of lockdown restrictions and health and safety concerns has been a change in consumer behaviour. Despite the best efforts of supermarkets to implement social distancing and with consumers spending more time at home, we have seen a sharp rise in delivery direct to the consumer.  

This change in behaviour has presented multiple opportunities for Scotland food & drink businesses. We have seen first-hand when working with our clients, whether that be supporting with grant funding applications, fundraising or a review of the business model, how businesses are adapting and utilising technology to either open up new revenue streams or revolutionise their business model and operations.  

We have often found, and as is the case for many of the below examples, mid and long-term growth strategies are being accelerated to take advantage of immediate opportunities and in some cases, to simply survive. Innovation and investment do however require significant thought and we would always suggest speaking with your advisor before taking action.  

Example success stories include: 

• We’ve seen the successful implementation of direct sales across many food and drink sub-sectors such as agricultural businesses delivering meat and fresh produce to local households, bars and restaurants delivering takeaway food as well as retailers operating a delivery service while their doors remain physically closed.   
• A catering client successfully applied for the Bounce Back Loan Scheme to accelerate their growth plans and to invest in new technology which enabled them to sell their fresh produce products in a contactless manner and to a wider client base. 
• A hospitality client has used the downtime to develop a large outdoor seating area, enabling them to re-open to the public at an earlier stage than before and increasing their capacity with and without social distancing. 
• We have seen alcohol retailers have become distributors for wine and spirit companies offering online tasting sessions via video call platforms. 

Innovation has been essential for businesses responding to the challenges presented by COVID-19, whether that be the development of product ranges or modifying operational processes. It goes without saying that in the current climate cashflow and working capital requirements have been under greater scrutiny, therefore we would encourage owners and management teams to be mindful of potential R&D claims. A number of our clients have successfully applied for R&D claims in recent weeks which provided a welcomed boost to their working capital and cashflow during these unprecedented times.  

Throughout the country businesses have been accessing Government backed support via the VAT deferral scheme, Job Retention Scheme, CBILLs and others.

For businesses in the hospitality and tourism sectors, the temporary reduction in the VAT rate from 20 per cent to 5 per cent until 12 January, 2021 will hopefully provide a welcome stimulus. With the reduced rate applying to supplies of food and non-alcoholic beverages for consumption on-premises, hot takeaway food and beverages, hotel and holiday accommodation and entrance to certain attractions, many businesses in the hospitality and tourism sectors will hopefully see increased consumer demand for their services. Coupled with the 50 per cent “Eat out to help out” discount available from Monday to Wednesday throughout August, restaurant bills will be reduced to further encourage those looking forward to safely visiting their favourite venues.

These different measures have certainly helped steady the ship over recent weeks and months, however we want to encourage businesses to now be more forward looking. We have been working with our clients to modify projections and review internal processes to ensure the right information is being used to make the right decisions and to formulate a business plan for the short and mid-term to ensure the business is both scalable and commercially sustainable.  

Technology has also assisted a number of our clients’ internal processes. Businesses which utilise cloud accounting have certainly seen the benefit of being able to monitor their financial position using real time information enabling them to have a stronger grasp of their cash flow and working capital.    

By Derek Mair, Partner and Head of Food & Drink at AAB

To find out more about AAB’s Food & Drink team, click here