The issue: How does the Scottish food and drink sector build on the legacy of the 2015 Year of Food & Drink and what do we need to do to support them?
From the health of the nation through to growing exports and building greater collaboration between businesses and universities, there were plenty of topics on the menu for debate at The Bonham Hotel in Edinburgh. As VisitScotland’s Year of Food & Drink drew to a close, a group of entrepreneurial businesses and other key players from the sector gathered to discuss how they could build on the legacy of the campaign and reach the ambitious goal of growing their sector’s turnover from £10 billion in 2007 to £16.5bn in 2017.
The 2015 Year of Food & Drink hasn’t just inspired tourism businesses but has been embraced by producers from throughout the sector, giving them a focus for holding events and introducing their goods to potential customers.
The businesses gathered for the BQ Live Debate wanted to explore how they could build on their successes in 2015 and help the nation smash the stretching target set by industry body Scotland Food & Drink to increase exports from (£5.1bn to £7.1bn by 2017).
Kevin Boyd, managing director of Santander Corporate & Commercial Banking in Scotland, welcomed guests to the debate. "Food and drink for us is a key sector that, as a young entrepreneurial bank, we’re keen to grow," he explained. "The food and drink sector in Scotland contains lots of young entrepreneurial businesses, so there’s a great fit for us there. Scotland exported a record £5bn-worth of food and drink last year, which again is a good match for us because of our own footprint overseas."
Laura Gordon, Scotland group director at Vistage UK and the chair for the evening’s debate, immediately challenged the participants to identify which areas required work to develop the sector.
Lynn Mann, managing director of Supernature, a Midlothian-based producer of cold-pressed rapeseed oil, wanted to see greater collaboration. "The key for me is to build on the ‘Brand Scotland’ idea – whisky, beef and salmon producers have all been brilliant at that and so I think other smaller producers can learn lessons from them," she said.
"Our sectors need to be better joined up – Scotch beef and salmon are still telling people to use olive oil in their recipes when they’ve got a Scottish oil on their doorstep. Likewise, we could specify Scotch beef instead of just beef in our recipes."
Santander’s business development director, Steve Hand, echoed Boyd’s comments about the bank’s desire to help grow the food and drink industry. He highlighted the strength of the infrastructure in Scotland, including trade body Scotland Food & Drink.
"We’ve been lucky to support many diverse sectors already – from gin to tea," he said. "One of the talents that Santander can bring to the party is our international focus. The industry has the perfect recipe, if you’ll excuse the pun – great businesses and well-respected brands."
Following senior roles at United Biscuits and Diageo, Andrew Richardson is now a director at Stirling-based VC2 Brands, which owns the Black Wolf Brewery, Boe gin, and Stivvys vodka liqueurs and ciders. He noted the large number of small Scottish food and drink companies, but the lack of big businesses. "We’re very good at producing small, entrepreneurial businesses, but not very good at then becoming world-beaters," he said. "That seems to be an issue."
He added: "I recently attended an export seminar at which we were encouraged to think about whether we wanted to promote ourselves as being Scottish or British," he said. "If you go to parts of China then no-one has heard of Scotland, but they have heard of Britain.
So it depends on which market you’re selling into – if it’s Germany then Scotland would probably be the brand to use, but if it’s Asia then Britain might be the brand."
Two weeks before the debate, Alastair Clark had sold Clarks Speciality Foods, a distribution business he founded 23 years ago. "Smaller producers are often seen as the poorer relations to the beef, salmon and whisky industries, but I think support is growing through Scotland Food & Drink and Scottish Development International (SDI)," he pointed out.
Provenance and expansion were two key themes for Yin Fei, who told the story of how his mother, Jian Wang, arrived in Edinburgh from Changchun in North Eastern China in 1997 and founded Jian’s Dumplings. The family now also has Chop Chop restaurants in Edinburgh and Glasgow.
"We produce our dumplings using local ingredients, with no mono-sodium glutamate (MSG) or other additives," he explained. "I’m very proud of my mother’s achievements and I hope to help grow the business. We started selling our dumplings in Aldi’s supermarkets last year and we hope to target other supermarkets next year."
Warren Bader, managing director at Wishaw-based Plan Bee, which rents beehives to companies and then produces honey, beeswax candles and recently its first mead, highlighted the need for confidence. "My company wouldn’t be here without the help of Scottish Enterprise," he declared. "We’re so lucky because they’ve got nothing like it in England. We have a fantastic industry and we need to be more confident – I’m South African and naturally we’re very forward, whereas the Scots are more reserved. I believe small is good and niche is where it’s at, that’s where my heart is."
Bader, who has been in Scotland for 17 years, also stressed the need for more bottling facilities in the Central Belt, which could perhaps be run as a co-operative.
His point about a lack of facilities was echoed by Fiona Houston, founder and chief executive at Mara Seaweed, which makes dried and milled seaweed flakes. "We’re making condiments sexy," she explained. She couldn’t find a company to package her goods so Mara had ended up doing the job itself.
She also called for more to be done to help companies to access the research carried out by universities, which prompted Mann to mention the work being done by Interface, the dating service that matches businesses to academic expertise. "I’d also love to piggy-back on Diageo’s knowledge," Houston added. "They’ve already done it – we don’t need to reinvent the wheel."
Having raised two lots of investment, Houston said she was now going down the path outlined by Richardson for growing her business, especially through expanding her exports. "You don’t have to have a saltire on your packaging to be a Scottish brand," she added.
"The Chinese associate Scotland with honesty, integrity and high standards of food safety."
Gina Cleife explained how her work as a relationship manager at Santander Corporate & Commercial Banking complemented that of Boyd and Hand. "We always get asked by food and drink companies about exports," she explained. "They ask how to do it and we give them tools to help them do that, as well as working capital, which is the finance that they need to make it happen."
Riddell Graham, director of partnerships at VisitScotland, reminded guests that the tourism agency had held its first ‘year of food and drink’ five years ago and that there had been a very strong food and drink thread running through the 2014 Year of Homecoming, the Commonwealth Games and the Ryder Cup. "I remember criticism that the only beer that you could buy at the rugby internationals was not produced in Scotland," he said. "So we’ve had a big focus on using events to shine a spotlight on Scotland’s food and drink."
Adam Hardie, head of food and drink at Johnston Carmichael, Scotland’s largest accountancy firm, agreed with Mann. "Collaboration is fundamental," he said. "It’s worked really well for the rapeseed oil companies, craft brewers, craft distillers and chocolatiers.
This ‘Brand Scotland’ idea needs to take it further because it’s premiumisation that we need to address next as a nation. The world knows us for whisky and that’s an industry that’s been so successful through premiumisation. It’s also about taking premiumisation beyond food and drink, and into cashmere, golf and jewellery."
HEALTH OF THE NATION
Health proved to be an engaging topic for many of the participants in the debate. Peelham Farm director Denise Walton highlighted the balance between growing the industry and producing nutritious food and drink. "The Scottish Government published its ‘Good Food Nation’ policy, but I believe we have a ‘bad food economy’ that produces a lot of sugary drinks and confectionery," she said.
"Making the shift from a ‘Bad Food Economy’ to a ‘Good Food Nation’ will provide small niche healthy food producers with quite exciting business opportunities and we have to sensitively explore how we can make the most of those opportunities."
Graham Silcock, regional director at Santander Corporate & Commercial Banking, pointed out that poor food education over the past 20 years had resulted in the nation’s bad diet. "The provenance point is hugely important," he added. "People want to buy quality and food that they know is safe. We have the debate around whether there’s too much regulation and too much red tape, but does that actually help us sell in parts of the world where that quality assurance has resonance, like in China?"
Graham said: "When I started in tourism 30 years ago, the food offering wasn’t nearly as good as it is now. There’s now an expectation among visitors that the quality of the food will be high. The deep-fried Mars Bar is a cliché and one that’s a lot less prevalent than it has been in previous years."
"There’s a dichotomy there," Walton interjected. "There’s what the tourist sees and then there’s what our residents see. If we want to bring those two viewpoints together we’ve got to make good food more accessible to a wider group of people – there is a social-justice issue there that we need to address but there’s also a business opportunity. We need to consider how we can actually make that happen."
Houston agreed. She asked: "How does it filter down from what the visitor gets to what the average school pupil gets? I would love for our products to be on the table of every school canteen, but we can’t afford to do that. If we have a premium product then right now we can’t afford to be in that public sector sphere. But the other way that we can make a difference is through education. I recently met the man who developed the curriculum for the Scottish Qualifications Authority (SQA) and he’s asked me to speak at a conference for catering college tutors."
"You need to start with the parents because they don’t know any better," Bader said. "Most people don’t even know how to roast a chicken anymore."
Silcock highlighted the changes being made by businesses including Irn Bru-maker AG Barr, which introduced sugar-free variants and moved into markets including bottled water and fruit juice-based drinks.
"A client of ours recently met with a soft drinks buyer from Tesco, who said he wasn’t interested in any soft drinks that have sugar in them," Hardie mentioned. "The health kicker is pushing into the buyers at the multiples."
"Food has got better, but it’s in terms of its calorific value," said Walton. "We have more calories than we had 30 or 40 years ago, but the nutritional content has dropped dramatically. Obesity is a sign that we’ve got unhealthier. The issue isn’t about poverty; it’s about education. It astonishes me at the farmers’ markets now – 15 years ago you just got the professionals, now it’s single mums, the elderly, and students. They don’t have a lot of money, so we’re selling cuts of meat that are less expensive."
Mann said: "It sounds like there are two things going on here – there’s the premium products that we’re making that happen to be healthy that we’re selling to people who can afford them, and then there’s the message about trying to get people to eat healthily. But that’s the same message that people have been trying to get across for decades.
I think what’s going to change that is that the government and the health service are beginning to recognise the high cost to the economy of people getting diabetes or being hugely obese. Those are the drivers that will put pressure onto supermarkets and foodservice companies supplying schools."
"We’ve never used MSG or additives or colours in our food because that’s what we believe in," explained Fei. "Even though there have been other business advisors who have come along and said that if we change this or that then we could sell more, mother has told them to ‘Get lost’. In Saudi Arabia, I believe they are giving away an ounce of gold if you lose weight – so perhaps we could try something like that."
Bader goes into schools to talk to children about honey being an alternative to sugar and to raise awareness about the importance of bees. "Some children have never tried honey," he said. "That’s the small contribution that I can make."
Considering the links between education and health led on to a discussion about the need for greater collaborations, both between businesses and universities, and also between individual companies. Sharing experiences also stoked the debate about the size of companies and whether Scotland has a lack of bigger businesses.
"I was in Arran this summer and there’s a lot of cross-selling going on," Gordon said. "To me, that was an example of great collaboration."
Bader highlighted the need for greater collaboration when it comes to beer, cider and mead in the Central Belt, and he also reiterated Houston’s point about the lack of packaging specialists. "For me, it’s better that we have a 100 small companies all doing well and employing ten people than have huge conglomerates. Small is good, small is agile. When you become a huge company it becomes like an oil tanker, you can’t turn it."
"Arran is a great example," agreed Boyd. "I’ve listened to and I’ve spoken to Alastair Dobson, who’s the managing director of a Taste of Arran, which is a co-operative in effect that brings together a diverse range of businesses."
Houston agreed: "I’m on the export collaboration programme and it does work better when you work together with other artisan products. But that’s marketing. What Warren is talking about is far more fundamental – how you reduce the cost of production. I’m all for marketing, but it’s far more difficult to find production collaborations."
"Will that not come as demand grows?" Clark asked.
Bader and Houston both argued that the demand is already here, but that the facilities still weren’t available.
Hardie pointed to the example set by the whisky industry, large parts of which use bottling facilities in Broxburn, on the outskirts of Edinburgh, as well as collaborations between distillers and barley farmers.
Richardson spoke about his work with the Society of Independent Brewers (SIBA) and the difficulties that small businesses had in finding the time to collaborate.
When it comes to oilseed rape, producers are already working together as a marketing group, Mann explained. "We’re applying for protected geographical indication (PGI) together, which will be an 18-month or two-year process, and we’ve had research done by academics, which has compared Scottish oil to that from other countries, which is important when applying for PGI status," she added.
"Can you sell together as well?" Hardie asked.
"That might be a bridge too far," Mann replied. "We’ve never talked about that – but there have been rumblings when we’ve looked at the size of markets like China. I would never rule it out."
Hardie pointed out that meeting expectations was one of the biggest challenges when dealing with a market like China.
Clark said he had seen associations come and go over the past 23 years and that many had fallen apart because of conflicts between the producers. He also pointed out that Taste of Arran was more of a distribution business than a co-operative and so didn’t share production. "That’s why it works really well," he said.
The discussion around sharing expertise to cut production costs developed into a broader look at how small companies could grow by targeting export markets and what help they need. Gordon asked whether collaboration between small producers would be enough on its own to hit Scotland Food & Drink’s export targets, or whether a greater number of large-scale businesses were needed.
"I was at an event and one of the senior figures from Kantar was there," Houston said. "He said Scotland is very good at expertise and really good at producing products, but it doesn’t have scaled production. If you’re going to make it big in export markets then you have to take your idea or brand and then find a local partner.
For us, that’s part of our business model. We could partner with, say, local people in Argentina to support fragile coast economies using our marketing nous and expertise. That’s where you get the scalability – but it’s not necessarily about it all being based right here, right now."
"It’s a very crowded marketplace," Walton added. "Our unique selling point is that we just use our own livestock – so there’s a natural limit to what we can do. I’m faced with an interesting situation because we have London stores selling our products. They’re selling well and the shops are getting repeat business, but they’re not selling fast enough. Commercial property is so expensive in London that each product has to justify its space on the shelf."
Clark suggested that organisations like Scotland Food & Drink and SDI could do more to share details about buyers or put businesses in touch with buyers. Several of the business around the table agreed that they had been faced with situations in which organisations wouldn’t give out buyers’ contact details.
Silcock drew their attention to Santander’s Trade Portal, which is designed to help clients and prospective clients to access overseas markets. "You can type in a harmonised system (HS) code and get a list of importers and exporters working with that product," he explained. "I was in a meeting with the First Minister last week and she wanted to know all about Trade Portal. That was the major topic that she wanted to talk about."
Cleife pointed out that Trade Portal can also supply information about taxation and other paperwork that goes with shipping overseas. "It’s a bit of a one-stop-shop," she said.
THE EUROPEAN PROJECT
A straw poll by Gordon found that only one out of the 13 participants in the debate was in favour of the UK leaving the European Union (EU). "The sun will still rise and business will still go on," said Bader. "Demand for British or Scottish goods will still be there. We’d be better off out. We’d still do business and it would still be good."
Other diners disagreed, arguing that remaining inside the EU would be preferable. What struck a bigger chord was the idea voiced by Silcock that the UK consisted of two tiers – inside and outside London.
Bader highlighted the need to grow the "powerhouses of the north" in Glasgow and Manchester.
"I don’t think we should blame other people," said Richardson. "We should look at ourselves. Just because London is successful doesn’t stop Scotland from being successful."
Gordon argued: "Some people would say that London drains all the best talent away."
"If we were Americans and we were more interested in starting our own businesses and being entrepreneurial then that wouldn’t bother us," countered Richardson. "I don’t have the answer to why we don’t have more home-grown companies but I think we’ll find the answer by looking at ourselves rather than others."
Boyd suggested: "I think we have a higher proportion of home-grown businesses in Scotland, but I think we sell them. I think London does attract more investment, so I’d be interested to hear Fiona’s experience of raising funding."
"It was hard and took a long time – I think it’s harder as a woman because you’re always pitching to a room full of men," Houston replied. "I wasn’t giving away 50% of the company; I was giving away a relatively small percentage for a relatively small amount of money."
"Fundraising is always difficult," agreed Hardie. "If you look at scalability, Scotland has two companies with perceived valuations of more than US$1bn – FanDuel and Skyscanner – and they’re getting a lot of attention globally. As a nation, we need to get better at uncovering funding from further afield. Distillers have got good at that. But there’s no magic pill."
"If I was to do it all again then I would probably start by going to the States," added Houston. "They just get it or they don’t get it. I got quite frustrated towards the end of the process because it was clear some potential investors just didn’t understand what we were trying to do. But we got there – 40% came from Scotland, 30% came from CrowdCube and the rest came from English private investors. We ended up over-subscribed by 30%, so we raised more than we intended to, which was great."
PAYING A LIVING WAGE
Another topic that engaged participants was the introduction of the national living wage on 1 April, which will force employers to pay workers aged 25 and over a minimum of £7.20 per hour. Food and drink is often a labour-intensive industry and so the increase in the minimum wage – along with the introduction of auto-enrolment pensions – is a hot issue for many businesses.
"Margins are always fragile in the food and farming industries," said Walton. "So the living wage will have an impact."
Fei agreed: "There are a lot of expenses in the restaurant industry. It’s very competitive at the moment."
"It’s slightly different for us at this stage because we only have four employees," said Mann. "It’s been our policy to pay more than the living wage, but I don’t know whether that would become more difficult for us if we got larger."
Clark said: "I think most businesses always want to be able to pay the best possible wage that your business can pay. You’re always striving to improve where you can. But in the food industry the margins are not great and they’re getting squeezed all the time. I’ve always been frustrated that you never get any benefit coming back from the government for employing people.
It would be great if there was a reward – if you employ ten people then you get a certain level of tax relief or if you employ 20 people then you get a higher level of tax relief."
"As a lender, the living wage has a massive focus for us," said Boyd. "We will look at the implications of the living wage being introduced and how it will effect a company’s forecast position and its ability to repay its debt. From a personal point of view, I’m conflicted, because should we be lending money to a company that can’t repay that debt unless it pays people less than a living wage.
As a society, I think we should be saying it’s a good thing and if it means slightly less profit for people who are employing other people then so be it."
Hardie said it was an issue for growers and food producers, such as those in Angus and Fife, who wouldn’t be able to run their businesses without the use of Eastern European labourers, with a knock-on effect up the food chain to retailers and restaurants.
Richardson argued that owner-managed companies would feel the effect of the living wage more than larger companies. Boyd pointed out that larger businesses would also feel the pinch if introducing the living wage meant that they would have to shed staff or not increase wages for other workers. "It’s not a black and white issue," Richardson added. "I think there are some businesses that will employ fewer people as a result. I don’t think it should be mandatory."
During the closing comments, Graham highlighted the benefits of showing your customers how you make your food and drink products. He pointed to the examples from Arran, where tourists could watch cheese, chocolate or beer being made, as well as the development of many whisky distillery visitors’ centres.
Boyd brought the debate to a close by thanking the participants: "Internationalisation is very important, whether we shout about Scotland the brand or Britain the brand, whichever is appropriate in any given market."
Opening the trade portal
One of the most interesting questions raised by the BQ Live Debate was how food and drink companies can be put in touch with potential customers, whether they’re distributors in the UK or importers working abroad. Some of the producers said that they had struggled to gain access to supermarket buyers and other potential customers through the public agencies and other bodies that were charged with helping companies to gain access to markets.
A solution to the problem came from Santander Corporate and Commercial Bank, which took part in the debate. The bank pointed to the popularity of Trade Portal, a service it had created to give online banking clients access to information including global databases of importers and exporters, analysis of market trends, and data about foreign currencies.
Graham Silcock, Santander regional director for Scotland, said: "Santander is established in 14 countries and so we’re ideally placed to introduce companies to potential business partners in new markets." Another hot topic during the debate was the need to improve the nation’s health through education. Santander recently sponsored a cook book written by the parents and pupils at St Peter’s Roman Catholic Primary School in Edinburgh, which featured healthy recipes. Steve Hand, regional business development director at Santander Corporate & Commercial Banking, added: "Little things like this can make a big difference and every organisation can play its part."
Find out more about the Santander Trade Portal at santandercb.co.uk/tradeportal