Is it blowing hot or cold for SMEs in the food & beverage sector?
Issued by ByDesign Communications - Aug 23rd, 09:45
The food and beverage sector is an integral part of South Africa’s hard-working economy – and widely known as a popular and competitive space. It’s all in a day’s work where new-age urban pop-ups serving high-quality fast cuisine to foodies, compete with trendy side cafes for customers in a fast-paced world. This can all seem a bit of a bun fight as merchants find the need to be innovative in order to stay ‘in demand’.
Most retail businesses are feeling the pinch of an economy under pressure as consumers tighten their belts. Yet innovative funders, Merchant Capital are finding an escalating need for funding in this space – a need that signals growth. In fact, the fintech has found that just under 40% of its funding provides working capital to entrepreneurs and SMEs in the food and beverage sector.
“We are finding that small businesses are requesting funding for a variety of needs that will drive the growth of their business: it could be to hire more employees; buy new equipment; refurbish their store; buy more stock – or even to boost their marketing. They don’t necessarily have to be elaborate plans, but each funding step is crucial to the next,” says Dov Girnun, Founder and CEO of Merchant Capital. “The only thing you can truly count on is the constant need for working capital, and the bottom line is that SMEs have an appetite for growth that traditional finance institutions have historically struggled to feed,” adds Girnun.
In order to support retailers in the food and beverage industry, Merchant Capital has interviewed restaurateurs, analysed the sector and identified trends that will serve the ambitious growth of SMEs. There are a number of positive trends to support a positive outlook.
#1. South Africans spent more on eating out and coffee last year than they did the year before. And because hard working consumers are tending to work even harder during this downturn, they don’t have the time to cook. This translates into an uptake in take-outs, or grabbing a quick bite to eat. Good news for those working in the food and beverage sector.
#2. Consumers have developed an international palate and there is a growing opportunity for more “small food” innovators, which are becoming increasingly popular with patrons looking for authentic foreign food that is locally made and produced. With an inherently multi-cultural society, South African consumers are now spoilt for choice and restauranteurs are cashing in on this wave.
Girnun explains that there is an ebb and flow to food and beverage businesses, where great months are often cyclical. He says this needs to be considered when funding entrepreneurs. Merchant Capital takes into account quieter seasonal periods that affect this sector. In these periods the repayment terms are smaller, working in line with the merchant’s slower turnover. Think about eateries selling great food on the beachfront in December, and the strain they may find themselves under in quieter winter months. “Instead of being locked into a long-term loan, working capital needs to be flexible because it’s the ‘air’ that small businesses need to breathe,” says Girnun.
As an entrepreneur himself, he says he can’t emphasise enough the need for entrepreneurs to align with a funder that connects with your business. “The working capital needs of a small business vary from industry to industry, it’s really about finding a funding partner with the same vision and values,” concludes Girnun.
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