If consumer demand for food & drink products is high, why is investment in NPD waning?

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The consumer appetite for new food and drink products is ever high.  Research reports food and drink products are still more sought after than new movies, TV shows or even new technology.

Understandably the industry responds by innovating and delivering the goods and in doing so attracts new entrants into the market both established and start-up, all with ideas to launch the next best thing, possibly since sliced bread.

With so much enthusiasm for new food and drink products by the UK consumer, you can’t blame the industry for trying to please.  On average there are more than 100 products launched in the UK market each month. But while it is trying, it is not always succeeding.  Failed food and drink products reportedly cost grocery brands more than £30m a year.  A staggering 76% failure rate on new products.

The risk being so high for product failure often means beyond introducing a new flavour to a tried and tested range product innovation is too much of an investment, even for the most established business.

The problem is certainly multi-faceted.  Some of the products that fail do so not because they are not well-researched or good products but because they are simply not visible to the consumer relying on the online retailer to list them in a way where consumers can find them.  However, many more fail to get beyond the drawing board simply because companies cannot afford the initial investment in manufacturing equipment or can’t find the partners to collaborate with and help them to process or pack their products and ultimately get them to market.

Within this context, how can we continue to encourage food and drink manufacturers to invest in innovation and new product development?

I think it is safe to say we can agree that most new food and drink products and processes will rely on investment in process, plant and machinery.

With that brings the added complication of reaching regulatory standards and compliance.  For example; most plant and machinery for food and drink needs a building specification that achieves and maintains either SALSA or BRC accreditation. This means not just having good building fabric but also highly trained staff and instilled systems to maintain the standard. This equates to a larger ‘sunk’ cost as well as potential higher ‘fixed’ costs to maintain the standards.

Underutilised buildings with machinery and trained people equates to higher ‘system’ costs i.e. the cost of each products put through the building is potentially less competitive given they have to carry the extra costs over a smaller volume.

To make investment easier and more commercially viable better line utilisation is required.

New equipment, process and or packaging formats are also expensive. Even if leased the general rule is that as much as half the investment is in installation and these costs are not generally financed. Equally, the equipment heavily depreciates if no longer required.

One answer is to combine the demand for processing and packaging systems so that one site can work for many companies, products and brands.  The competitive nature of the food and drink market means that the larger companies who can afford to invest might be persuaded to release to other companies their spare capacity if they can explore the opportunity without everyone knowing who they are and the formats that might be underutilised.

Mypackme.com seeks to address this issue and in the short few months it has been running it has gathered a lot of small and medium size food and drink companies who would like their products packed. It has also worked for larger branded companies who are seeking to bring new products to market that they do not have manufacturing capacity for.

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