Research from Arthur D. Little, an international management consulting agency, found a large discrepancy between what consumers want and what food and beverage manufacturers have to offer, particularly as it relates to innovation. To learn more about the findings and how food and beverage companies can embrace innovation, we spoke with Tim Barder, a Principal at Arthur D. Little.
You’ve surveyed over 20,000 consumers about what they want from the food industry. Can you give us an overview of the results?
TB: We were surprised to find that a large number of individuals spend a lot of time reading the nutritional facts panel on food and beverage items. They are well educated with respect to what they’re looking for and what they’re not looking for. But a lot of consumers have difficulty figuring out the absolute value of nutrients, in terms of what’s good and what’s bad.
A lot of our work and research has been around innovation and helping manufacturers do a better job at developing products that consumers seek out. We find a lot of manufacturers are constrained by their existing brands, product lines, and work structure in terms of R&D, marketing, and their sales forces. Large manufacturers, in particular, are not in a place where they’re able to adapt fast enough to meet evolving consumer needs.
As a result, oftentimes when they launch a new product line that is healthier — less sodium, more nutrients — they’re late to the party. And so what we’ve found is a lot of these companies set up their own incubators, or they take part in an incubator, to remove any kind of brand bias or old-fashioned processes that are slowing down the whole innovation process.
What are some things consumers are looking for that manufacturers are not currently providing?
People are looking for a range of nutrients. The common ones are vitamin C, calcium, protein, and fiber. They often can’t find them in products that they already know, so they look elsewhere.
One difficulty manufacturers face is formulating snack-sized products (bars, chips, etc.) with whole ingredients to deliver good sources of nutrient claims. We did an analysis to figure out if you could make a bar that was a good source of vitamin K, for instance. How many whole ingredients would you need to use in the formula to get to those claims without fortification?
It turns out, you have to use a lot of ingredients, up to 30% or 40% spinach to a good or excellent source claim for vitamin K. And of course, once you get to high levels of whole ingredients, formulation becomes a challenge in terms of cost, stability, taste, and texture. So it’s challenging to deliver substantial nutrients to consumers.
One of the findings was that 1 out of 3 consumers couldn’t list a single food and beverage brand they trust for health needs. What are the reasons behind that discrepancy?
I think what’s happened is there’s mistrust of large manufacturers. Consumers think they’re in it for profits only, that they have no desire to see people become healthier, and that they really just want to push more volume toward consumers.
Consumers are turning to smaller niche brands because they believe that these emerging brands are healthier and contain more nutrients. This may or may not be true, but consumers are so turned off by the notion of corporate greed that they’re willing to give up a brand they’ve been using for years and shift to a smaller brand. Consumers, as we found out, are able to convince themselves pretty easily that going to a smaller brand is better for them and their family.
Do you think smaller companies are better at communicating with consumers and building trust?
I think so, yes. Many companies have invested a lot into things like packaging sustainability and eco-friendly solutions.
But the challenge is that, again, consumers, when they see a large company embark on one of these initiatives, they question the motives. On the flip side, when small companies initiate their product launches and development with sustainability at the forefront, as opposed to trying to build it in after years of being in the marketplace, consumers believe that they’re doing it because they’re more friendly in terms of the environment. That they’re doing it because they want to, not because they have to. Whether you’re talking about packaging or manufacturing sustainability, health and wellness, or nutrition, if you build it from the ground up, it seems to resonate strongly with consumers.
What is it difficult for large companies to go beyond marginal, traditional methods of innovation?
What’s challenging for large manufacturers is they continue to innovate through their brands and department lines. They have to. They have huge departments, huge divisions of thousands of resources and they have to leverage these resources the best they can to get a return on investment in innovation.
But many of these resources are constrained. For those who have been in the marketing department for five, ten years, it’s really hard for them to think outside of the brand vision and narrative they’ve developed. A lot of firms recognize this at senior levels, and they’re thinking, “Well, if my internal team is just not able to go beyond incremental innovation around the core, I need to buy new brands, make large acquisitions.” But of course, those can be pricey, especially with valuations where they are today.
So a lot of these firms have set up incubators where they can remove any kind of brand bias. They can truly get to the heart of what consumers are looking for, of what ingredients are new and fresh outside their supply chains, and they can really start pushing the boundaries. The challenge is, for a lot of incubators, you start from ground zero.
And, given that all the large manufacturers are public, they have to report quarter to quarter. If things aren’t moving along quickly, they tend to get discouraged or not give the incubator enough time to set up, hire some folks, fund facilities, and think about research. It can take a lot of time to go from nothing to a brand that is resonating and doing well in the marketplace.
What are your recommendations for ways that companies can innovate effectively?
A model that works very well is you can approach firms that do consulting and product development and get them on board and up to speed very quickly, and get the process of innovation going there.
Another way to do it, and this is probably more challenging, especially for large companies, is to allocate resources more effectively towards non-core innovation. By that, I mean letting a brand explore categories outside of their core business. Maybe yogurt is the core business. Let them explore adjacent categories of interest that might play along with yogurt or dairy — maybe that’s cereal, maybe that’s bars, maybe that’s some kind of cracker. Taking down some of the constraints from the brands and product lines can encourage them to think beyond where they are today.
It’s very hard and it costs a lot of money, of course, to create new brands from scratch. But one of the solutions is to rebrand fully. If a brand is known to be unhealthy but people like it — it’s for snacking or for dessert — leave that brand alone. Innovate around different formats, packaging types, and flavors. But don’t try to innovate healthwise around a brand that already has a bad rap. I think companies need to develop new brands from scratch that have sustainability, health and wellness, or nutrition as the guiding principle, as opposed to trying to re-establish an old brand as healthier.
Can you share any examples of companies you think are doing this particularly well?
Nestle is a little different from most companies. They’re able to leverage a lot of their cross-functional and cross-divisional expertise into new products that are nutrition, health, and wellness-focused. They are the gold standard, not only for food and beverage, but for clinical nutrition when it comes to life-threatening diseases. A lot of other large companies are in a similar situation where they have some legacy brands that are not healthy — they’re indulgent, they’re fun, they’re tasty. But these companies don’t have a history or a mechanism in order to transform the way they operate.
The other company I’m thinking about is Mondelez. Mondelez is still in the early stages, but with Velveeta, they have a couple of new whole ingredient-based products, in terms of chips, snacks, and crackers. I think they might be an example of how to win back the consumer, in terms of convincing the consumer that they are investing in health and wellness research. They are investing in developing products that actually have package claims that are validated in the clinic.
What does the future look like for companies that haven’t been successful with innovation?
My impression is there will be more acquisitions of smaller brands that are doing well with consumers. I think what companies need to focus on when they acquire a brand is not just taking the brand on in terms of the manufacturing and distribution, but helping that brand influence culture change within their company.
If they don’t instill a culture change, either via external consultants or brands they acquire, and don’t do something proactively to change the way that they operate, they will struggle more and more. And then these niche brands will come up and steal market share.
For more information on Arthur D. Little and its work, visit the firm’s website.