Article: Editorial: Economies of Stale -- April 2008
Depending upon whom you ask, the U.S. economy is either in a recession, soon to be in one or simply enduring a slowdown. Regardless, many hold the view that the food and beverage industry is relatively insulated; after all, consumers have to eat, right?
The latter is of course true; however, while any economic slump will surely not be confined to one nation, it will have its winners and losers. What will an economic downturn mean to innovation in the industry? Will this result in fewer product introductions on store shelves? That could be a result, but manufacturers have long realized that the “New” tag on a product can boost sales, even if it is merely promoting a reformulation or relatively minor packaging change. In fact, some would argue that now is the time when true successes are made, while the less-aggressive bide their time until the economy starts to rebound. In the meantime, companies have been quite busy.
Recent months have seen a slew of joint venture activity and acquisitions. A pair of companies have joined together for the refining of vegetable oils; Diageo and Heineken have announced a pair of joint ventures; Coca-Cola has acquired Honest Tea; Hain Celestial has purchased a few new brands; and these are only the highlights of deals within the past couple of months. More are sure to come. In fact, one European dairy ingredients company has announced plans to spend 200 million euros ($310 million) on acquisitions this year in developing its “interests in the high-margin specialist dairy ingredients industry.”
While writing this, I am waiting for a flight to Anaheim for this year’s Natural Products Expo West, where estimates indicate just over 3,000 exhibitors will showcase their wares for the organic and natural consumer. However, do not think the major manufacturers will be under-represented: Honest Tea is a longtime exhibitor, and similar acquisitions have altered Expo West from what it was even four or five years ago. That is not to say this is a bad thing: these investors realized the need to diversify, and innovation within a large company can prove challenging due to a variety of constraints, or so common logic attests.
With an economic downturn, increased significant investment in R&D could be considered too much of a risk for major manufacturers, meaning they could likely resort to acquisitions to perpetuate their innovative efforts. Likewise, they probably will rely upon supplier expertise to an even greater degree.
The latter is of course true; however, while any economic slump will surely not be confined to one nation, it will have its winners and losers. What will an economic downturn mean to innovation in the industry? Will this result in fewer product introductions on store shelves? That could be a result, but manufacturers have long realized that the “New” tag on a product can boost sales, even if it is merely promoting a reformulation or relatively minor packaging change. In fact, some would argue that now is the time when true successes are made, while the less-aggressive bide their time until the economy starts to rebound. In the meantime, companies have been quite busy.
Recent months have seen a slew of joint venture activity and acquisitions. A pair of companies have joined together for the refining of vegetable oils; Diageo and Heineken have announced a pair of joint ventures; Coca-Cola has acquired Honest Tea; Hain Celestial has purchased a few new brands; and these are only the highlights of deals within the past couple of months. More are sure to come. In fact, one European dairy ingredients company has announced plans to spend 200 million euros ($310 million) on acquisitions this year in developing its “interests in the high-margin specialist dairy ingredients industry.”
While writing this, I am waiting for a flight to Anaheim for this year’s Natural Products Expo West, where estimates indicate just over 3,000 exhibitors will showcase their wares for the organic and natural consumer. However, do not think the major manufacturers will be under-represented: Honest Tea is a longtime exhibitor, and similar acquisitions have altered Expo West from what it was even four or five years ago. That is not to say this is a bad thing: these investors realized the need to diversify, and innovation within a large company can prove challenging due to a variety of constraints, or so common logic attests.
With an economic downturn, increased significant investment in R&D could be considered too much of a risk for major manufacturers, meaning they could likely resort to acquisitions to perpetuate their innovative efforts. Likewise, they probably will rely upon supplier expertise to an even greater degree.
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William Roberts is responsible for the consumer trends section in Prepared Foods, as well as the website news updates and e-newsletter. He served as the Senior Copy Editor at Elevator World. He holds a B.A. in English and a B.S. in Political Science from the University of Mobile.
