May 20/BMI Western Europe Food and Drinks Insights -- Groupe Danone has announced plans to open a new innovation center in the Netherlands to strengthen its expertise in the areas of baby nutrition and medical nutrition. The facility will consolidate the firm's existing Dutch-based research and development (R&D) activities and is expected to open in 2012. As well as highlighting Danone's commitment to the area of functional nutrition, the move demonstrates the Netherland's strength as an R&D hub for some of Europe's largest food and drink (F&D) companies.

According to The Federation of the Dutch Food and Grocery Industry, the Dutch F&D industry is worth over 50 billion euros and accounts for 22% of the Dutch manufacturing industry. Over 40% of output is exported, and the industry employs around 140,000 people. The Dutch food sector has a reputation for being highly innovative, and this partly stems from the high priority given to R&D. Around 2% of the turnover from the Dutch F&D industry is spent on R&D activity, a figure significantly higher than the worldwide average.

This aspect is supported by government tax policies and the specially designated "Food Valley" region near Wageningen. The location contains a concentration of food companies and research institutes devoted to food related sciences and technological development. Companies conducting research in this region include consumer products firm Unilever, baby food firm Numico (owned by Danone) and the dairy giant FrieslandCampina.

Danone's focus on the area of functional nutrition is in line with the view that this area will be one of the fastest growing F&D sectors in developed markets over the next five years. The move is also supported by the relative resilience of the sector during the current economic downturn, with many such products seen as necessities and therefore not substantially impacted by a fall in discretionary spending; in the first quarter of 2009, Danone's baby and medical nutrition arms delivered revenue growth of 10.5% and 10.6%, respectively.

The strong prospects for this sector were highlighted by the recent acquisition of French functional food producer Nutrition & Santé by Japanese nutrition specialist Otsuka Pharmaceutical. This move highlights the strength of the functional nutrition sector but is also a warning sign to Danone that other firms are focusing on the attractive European market and that it will need to invest heavily in its R&D capabilities if it is to maintain its position as a market leader.  

From the May 26, 2009, Prepared Foods E-dition