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Dive Briefing:
Mintel said in its report that innovation has declined the most in food and beverage compared to other industries since 2007. The market research firm said that 26% of new products introduced between January and May 2024 were genuine new products, compared to 50% in 2007.
Johnnie Forsyth, Mintel’s head of food and drink, said most of the innovation over the past 20 years has been in e-commerce. But he noted that food and drink manufacturers have to deal with complex supply chains, low margins and temperature management when it comes to providing fresh food and drinks. This makes the barrier to entry for new businesses higher than for startups in beauty and personal care or household goods.
The results come amid a prolonged period of inflation where consumers are cutting back on spending across a range of categories, including food and beverages.
Dive Insight:
Mintel’s report found that innovation across the CPG sector is struggling. Mintel said in the report that 35% of global CPG launches in the first five months of 2024 were genuine new products. These products span the food, beverage, household, health, beauty, personal care and pet care industries.
The market research firm said that was the lowest rate since it began tracking new products in 1996. About two-thirds of the products launched this year were “innovations,” or line extensions, reformulations, new packaging or relaunches of existing products, Mintel noted.
The lack of truly new innovation could spell long-term trouble for the CPG sector. According to Mintel’s analysis, innovation “has been in short supply in recent years, and this innovation drought threatens the future profitability and potentially the survival of established CPG industry players.”
There is already evidence that the slowdown in innovation is having an impact. Mintel notes that the lack of innovation (especially as big brands have pushed prices higher in recent years) has made it easier for consumers to switch to private-label options. In May, 31% of US adults said they had purchased more store brands in the past two months. Mintel asked, “Will these consumers automatically return to big brands as they become more financially confident?”
Food and beverage companies have publicly touted the value innovation brings to their businesses. Earlier this month, McCormick & Co.’s CEO said innovation was a “priority” as the spice and flavor giant ramped up its product offerings.
In February, the head of Conagra Brands, the maker of Slim Jim, said there was evidence that volumes were starting to recover in the food market, and that innovation was playing a key role in winning back consumers to frozen foods, snacks and other products.
If innovation continues to lag behind in the food and beverage sector, private labels may not be the only beneficiaries. Consumers, especially those looking for something new or resonating with their beliefs, may flock to other options. This will provide opportunities for nimble startups willing to take risks without having to appease shareholders.
There may also be additional pressure on retailers. As in-store volumes decline, store operators may put more pressure on companies to innovate to increase traffic and get more people to put in their carts.
Certainly, the success of innovation is not certain, and most new products fail. With such low odds and the need to continue to thrive with brands that generate greater profits, companies have less incentive to invest heavily in innovation, even when they recognize that innovation is important to the company in the long term.
