HomeKnow-HowTimes of Crisis: Are European SMEs (incl. startups) in trouble?

Times of Crisis: Are European SMEs (incl. startups) in trouble?

As news headlines continue to talk about crisis, European SMEs are once again navigating challenging times. Barcelona-based startup Glovo has released its annual survey looking at the outlook for SMEs in Europe, and it suggests SMEs are entering survival mode. We take a look. 

2022 has been an interesting year, to say the least. This year has brought societal upheaval, economic turmoil and political instability to nations right across Europe. It’s also bright to light the severity of the unfolding climate crisis, and just how far-reaching this crisis has the potential to be. 

Europe’s SMEs, which are very much the bedrock of the European economy, have once again found themselves facing surmounting challenges, tasked with increased pressure and even more hurdles to jump over. That being said, European startups and SMEs are still continuing to grow. The wider startup ecosystem has grown once again this year, and we are on course for another bumper year in terms of funding – albeit in the backdrop of budget cuts, lay-offs and pessimism. 

So – the question comes up: Are Europe’s SMEs in trouble?

Barcelona-based startup Glovo, one of the continent’s big successful stories since the pandemic days, becoming a unicorn with its ecommerce last-mile delivery service, has just unveiled a report looking at the situation of Europe’s SMEs, and the results are quite the eyeopener. 

Glovo’s survey

In order to find out how startups can thrive in the face of high inflation and lower spending, how SMEs can stay competitive, and the role that tech can have in all of this, the firm surveyed more than 3,200 decision-makers in small & medium-sized enterprises of the food, restaurant, and retail industries across 9 countries.

For the study, Glovo worked with research institutes in Southern and Eastern Europe, Africa and the UK. The European countries represented were: Bulgaria, Italy, Poland, Portugal, Romania, Spain and the UK. 

The objective of the survey was to find out more about the challenges those businesses are facing following the pandemic, how they tackle changing consumer behaviour, and how SMEs become more agile and innovative to strive in a world of high inflation, lower consumer spending, and increased macroeconomic risks.

Rodrigo Alier, Executive Director, Partners & Brands at Glovo: “We’ve seen that the cost-of-living crisis is weighing heavily on businesses across Europe. However, it is remarkable that businesses are facing almost the same challenges across all the markets, whether we look at the UK or Spain, Bulgaria, or Morocco and Kenya.” 

SMEs are struggling

One common trend that was visible in each surveyed market is quite a gloomy one –  SMEs are struggling. 

A combination of high prices, rising inflation and lower customer spending are taking a toll on SMEs and, at the same time, these companies are struggling to onboard new customers. As a result, SMEs are starting to enter survival mode. 

The situation is quite dire in the UK and Spain. Two-thirds of businesses in the UK indicate they are struggling to survive. In Spain, nearly half of SMEs surveyed admit to being in survival mode, and almost the same number of SMEs that find it difficult to stay competitive. 

Adapting to reduced consumer spending and an increased challenge to onboard new clients means that SMEs need to get ready to adapt and they certainly need to be paying attention to marketing strategies and customer retention plans. 

Customers, since the pandemic, have been looking for more digital, more personalised and more tailored experiences. Tech can help enable this, and if these results are anything to go by, now is the time for SMEs to invest in these processes – thinking of long-term gains. Despite this, the results show that companies are hesitant to spend on marketing – and this could be something that needs to be rethought by decision-makers 

In the UK, 84% of businesses believe that giving more choice and personalizing the shopping experience is what future consumers want. Half of the businesses in Bulgaria also agree that they are struggling to keep up with changing consumer behaviour.

Agility and innovation are top priorities

As customer behaviours evolve, SMEs need to be quick to adapt, and overcome in order to remain competitive and thrive in the coming months and years. 

As a result, the priority to become digital and agile has escalated significantly. For instance, 84% of supermarket respondents in the UK say they have been forced to become more agile, and one-third of UK businesses see digitisation as integral to their growth. 

However, despite this recognition, there is still plenty of scope to go further and untapped potential in creating digital experiences. For example, in Spain, only slightly more than half of the companies surveyed have implemented new technologies to become more agile.

So what’s the problem? Companies clearly understand they need to go digital but are hesitant to do so. 

Likely, it comes down to a resource issue. Struggling SMEs are going to be unlikely to invest big sums of money in marketing and outreach strategies that take time to see a positive ROI. Advertising spending and budgeting for long-term plans are often cast aside in times of crisis, and this could have a further detrimental impact on Europe’s SMEs. 

forward. This renewed focus on marketing uncovers another challenge SMEs are currently facing across regions: the challenge to reach new customers in an increasingly competitive environment. For example, one-fourth of respondents in the UK say reaching new customers is their biggest challenge. In Bulgaria, 75% of businesses agree that better customer outreach is key for preparing their business for the future.

One way startups could try to overcome this challenge is through collaborations and partnerships and we can expect this to become a growing trend in 2023. Startups and SMEs working together holistically to improve outcomes – isn’t that what the ecosystem and startup community is all about?

Economy of now

Connected to the demand for personalisation and digitalised experience, is the economy of now.

Who wants to wait for their products to be delivered? Who wants to wait to get customer support? The answer is no one. We are now an impatient bunch and SMEs need to cater to that. 

Doing so requires local availability and we are seeing SMEs starting to bring more localised capabilities to their toolkit, and other startups that are creating the software to enable this. Collaborations and partnerships will also help support this. 

Going local is a trend that began during the pandemic when people became confined to their homes and accustomed to ordering from their local shops and service providers, and now we can expect it to grow. For example, 49% of businesses in Romania started working with delivery partners during the pandemic and more than half of businesses in the UK. Today, 8 out of 10 companies surveyed in Italy regard collaboration with a delivery partner as fundamental and necessary for their business.

So, should we be worried?

European startups and SMEs are the bedrock of Europe’s economy. They provide employment, generate economic growth opportunities and keep society and the economy progressing forward. They have also been through challenging periods over the past decade and have had to show resilience to survive. 

Given the unfolding challenges of economic uncertainty and climate crises, small businesses are once again having to look at new ways to move forward. The good news? Europe’s SMEs have done it before, and they can do it again. Further, in today’s world of heightened digitisation, there is a range of options and solutions out there that SMEs can leverage. For Rodrigo Alier, this means that we needn’t be too worried. Instead, it’s about recognising that there is a lot of potential for businesses to grow and digitise their operations, and businesses recognising the benefit digital tools and solutions can have for them to reach more customers and grow.” 

Rodrigo added: The pandemic has changed the way businesses operate and it has changed consumer behaviour. The digital experience is becoming more important, consumers want more choice, a more personal experience, and they want their products delivered not tomorrow or next week, but now. Adapting to this change bears great potential for businesses to thrive and expand their scope (reaching customers that they weren’t before), product offering, and to adapt the way they sell and distribute their products.” 

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Patricia Allen
Patricia Allen
is the Head of Content at EU-Startups. With a background in politics, Patricia has a real passion for how shared ideas across communities and cultures can bring new initiatives and innovations for the future. She spends her time bringing you the latest news and updates of startups across Europe, and curating our social media.

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