Major food and beverage manufacturers are gearing up for a renewed focus on innovation, recognizing it as a pivotal factor for success in the face of challenges such as inflation, consumer fatigue over price hikes, and an increasingly saturated market. Industry experts anticipate that breaking away from traditional norms and embracing innovation will be crucial for these companies to attract and retain consumers amidst changing spending habits and a plethora of product choices.
While the shift towards innovation is deemed essential, it poses a significant departure for many established companies ingrained in a conservative, risk-averse culture. Despite the push for innovation, food and beverage companies face challenges such as pressure from Wall Street to increase revenue, rising costs for ingredients, shipping, and labour, and higher borrowing costs due to increased interest rates. And companies are currently judged more on maintaining sales for popular brands than on innovation.
The pressure intensifies with the growing competition from private label offerings by retailers like Target, Safeway, Kroger, and Amazon, which often rival branded items in quality and are available at lower prices. Simultaneously, large companies contend with the rise of nimble, innovative startups and other major players in their category, all vying for consumer attention.
Neil Saunders, Managing Director at Global Data, highlighted early signs that some food companies are allocating more resources to innovation, particularly in areas such as health and wellness, limited-time offerings, sustainable packaging, and on-the-go snacking. However, the impact on store shelves is yet to be seen, and larger companies may face challenges in adapting to innovative strategies.
Companies like Nestlé are already ramping up their innovation efforts after scaling back during the pandemic. Nestlé increased its pipeline of innovation projects by nearly 45% last year, with a focus on coffee, creamers, convenience, and prepared meals. Other major players like Hershey and Mars Wrigley are also stepping up their innovation plans for 2024, recognizing the importance of bringing the right kind of innovation that resonates with consumers.
Experts emphasize that innovation is critical for combating unfavourable consumer trends, but it requires careful consideration to align with brand essence and consumer expectations. As the industry navigates challenges, the spotlight remains on how well companies can adapt and innovate to secure growth in the coming year.