Article: In the Forecast -- December 2008
December 1, 2008
A troubled economy, changing consumer patterns and a variety of health concerns are compelling a number of changes in the food and beverage industry, not the least of which occur on the R&D side of the business. Developers are confronted with escalating costs, reduced staff and budgets, and frequently conflicting expectations. How are these developers coping in this environment? Prepared Foods commissioned a panel of experts from around the industry to offer their takes on the current climate and what can be expected in the near future.
PF: Open innovation has been an R&D trend in the industry for several years. Would you describe your company’s efforts in this area?
Jeff Bellairs, director of external innovation at General Mills (GM): In the spring of 2007, General Mills formalized our open innovation initiative and officially launched General Mills Worldwide Innovation Network (G-WIN). G-WIN seeks patented or patent-pending product, packaging and process ideas from an array of external partners—including entrepreneurs, inventors, universities and other food companies. Our concept of applied open innovation has generated a wide spectrum of collaboration opportunities—everything from applying existing technologies more effectively internally to partnering more closely with key suppliers to finding potential new partners in entirely different industries.
We are not looking for new ideas; we are looking for new technologies and new products that fit within our existing businesses, or even a licensing agreement. Very broadly speaking, we are looking for innovations that can help improve our existing products or create new products that provide greater levels of health, convenience or taste for consumers.
PF: What do you see as the next immediate endeavors in health and wellness? What efforts do you foresee manufacturers attempting in the next 5-10 years?
Heidi Emanuel, vice president and senior innovation officer at General Mills (GM): General Mills generates 40% of our worldwide sales from food categories that are inherently nutritious: cereal, yogurt, vegetables and organic foods. We are also focused on creating products that attract new consumers to our brands or extend our brands to new health benefits and new usage occasions.
Many of our brands, both new and established, provide tangible health benefits--including weight management, portion control or health benefits--such as added fiber, lower sodium and digestive benefits. We have more than 150 products in our U.S. retail line with 100 calories or less per serving.
In the next 5-10 years, food manufacturers will likely continue to develop products targeted at weight management and aging consumers, given that both of these issues impact consumers globally.
Stan Frankenthaler, executive chef/director of culinary development at Dunkin’ Donuts (DD): For us, it is all about offering consumers choices. Our customers love Dunkin’ Donuts, because we offer a full menu of fast, fresh, affordable foods and beverages they can enjoy any time of day. Our DDSMART menu, which was rolled out in August, enhances our current menu with additional choices for customers seeking better-for-you items.
PF: How do you see that health/wellness trend coexisting with the consumer desire for gourmet and indulgent?
Frankenthaler, DD: While consumers are demanding more better-for-you food and beverage options, they are not willing to make a trade-off on flavor or texture. Consumers expect an exciting eating experience, without making any compromises.
When working with manufacturers and suppliers, we expect the same gold standard from them that we demand of ourselves. One of our challenges is changing the expectations about what is possible at quick-service restaurants. Dunkin’ Donuts is focused on raising the bar on quality and creating new menu items that will satisfy thousands of customers throughout the day. Our culinary team is focused on quality first--they create one perfect dish--and then we work with our manufacturers and suppliers to determine how it can be delivered with the same level of quality to thousands of customers. We work together to ensure that we provide the ultimate, quick-meal experience.
Emanuel, GM: The trend toward health and wellness does not negate the desire for indulgent products. Health and wellness is about balance. As people become more health-aware, they often become more judicious about their consumption of indulgent products. Their occasional indulgences become more planned and more thought-out.
Another trend we expect to see is that some of the biggest flavor trends will come from global cuisines that we already know and love--with Asian and Latin cuisines such as Korean, Vietnamese, Caribbean and Mexican likely to be the standout stars. We also expect a newfound interest in spices and herbs. Just as gourmet salts are currently all the rage, exotic varieties of pantry staples like pepper, cinnamon and vanilla will likely increase.PF: Ethnic flavors have been a stalwart of NPD efforts, but, of late, development seems to have geared more to regional tastes and preparations. Where do you see the trend heading?
Mario Valdovinos, director of culinary services with Tyson Foods Inc. (TF): As the ever-changing American palate diversifies, consumers and foodservice patrons are becoming more intrigued with global cuisine and its techniques. There are three established ethnic cuisines in America: Mexican, Italian and Chinese. As the popularity of these cuisines matures/increases, authentic ingredients and cooking techniques begin to emerge. We are seeing a deeper emphasis in regional ethnic foods, as opposed to a broader food ethno-category. Far-away cuisines have sparked many restaurants to call out the source of the ingredients, recipe/dish or cooking methods on the menu. Whether it is Baked Puebla Mole Chicken Enchiladas, Caribbean Rum-glazed Wings, Tuscan Wood-fired Chicken or a Chimichurri Sauce Finished Flat-Iron Steak, consumers/people love to feel they can explore the world through new flavors and forms.
PF: The economy obviously is emerging as an issue within all companies and divisions. How do you see the difficult economy impacting your company’s R&D and innovation efforts?
Frankenthaler, DD: Listening to our customers and evolving to meet their needs has always been the foundation of Dunkin’ Donuts’ success. We will continue to engage our customers and evolve to meet their needs in the future. In trying economic times, it is extremely important to continue to provide our customers with great-tasting food and beverage choices that are served fresh, fast and at an affordable price.
PF: With a new administration taking office in January, how do you see regulations impacting companies and their product development efforts?
Frankenthaler, DD: We are heading into uncharted territories, both on the legislative and regulatory side, and the landscape facing companies has changed. This will continue, regardless of whom takes office in January, and companies will have to evolve and adapt accordingly.
Mark S. Hostetler, attorney, Husch Blackwell Sanders LLP (HBS): The concerns prompting the legislative initiatives and draft proposals of the 110th Congress (food import safety; third party certification; tracking and tracing; issue notification; and recall authority) will continue into 2009 and the new Congress. However, the state of the U.S. economy will have a direct impact on food-related regulatory and legislative activity.
While food safety issues will not suddenly go away, regulatory activity may be more characterized as reactive to the demands of a particular crisis, if there are no dollars in the budget, and economic issues are commanding more congressional time.
PF: What moves do you anticipate from the next Congress, in relation to the food industry?
* Calls for a new Food Safety Administration (SFA) to combine the enforcement of the major food safety laws will likely slow.
* Strained budgets will mean fewer federal dollars to hire new personnel to invigorate existing programs or stock new food-monitoring initiatives.
* While demands for a “safer” food supply will not diminish, fewer federal oversight dollars will mean that FDA will press for more third-party participation in food safety.
* FSIS may be more receptive to state inspection of meat products crossing state lines.
* Retailers may increasingly look to their suppliers to provide food safety assurances from farm to the retail shelf.
* Increased costs of the scientific support required for new health claims may mean that fewer producers pursue new health messages.
* Limited food dollars may mean that consumers will look to more traditional, simpler, less costly, less branded foods to meet their dietary needs.
* Producers may need to look for innovative ways to differentiate existing products or develop line extensions which do not involve significant costs unable to be recouped through higher shelf prices.
Given the possibility that federal regulatory initiatives to address food safety may slow, look for an emphasis on industry self-regulation, “voluntary” third-party certification and retailer-down assurances of product safety and regulatory compliance.
Third-party certification, a “voluntary” program floated by FDA in 2008, represents an opportunity to expand its oversight authority without new legislation, more inspectors or more agency dollars. Companies who subject themselves to voluntary certification will experience fewer regulatory inspections, among other benefits, for their cooperation. However, the cost of the certification process will not be minimal, resulting in fees for the services of the certifier and the potential for increased FDA awareness of operational activities heretofore beyond the reach of FDA investigators. Retailers have already begun to require from suppliers their own form of “certification”--a requirement that is only likely to expand beyond private label to branded and beyond some retailers to many retailers, as sellers look to reassure their customers that the products they sell are “safe.”
PF: What about the regulatory impact on manufacturers?
Hostetler, HBS: Producers may be pinched between the need to incur the additional costs of the certification process and their ability to pass on the additional cost to their retail customers.
Producers will be looking to differentiate and market their products in ways which will make their products more attractive on the shelf and which provide additional on-shelf assurance of their “safety”--all without increasing the cost.
* One soup manufacturer has already reacted to a competitor’s “clean label” advertising, and “cleaning up” labels would seem to be a cost-efficient way to address consumers’ concerns about “artificial” ingredients and chemical-sounding names.
* However, producers who feel the impact of increased ingredient costs may have to look at new product introductions. Since innovative products lack an in-market competitor (for price or other comparisons), new products may be one way for producers to increase their selling price to reflect their increased costs.
* The push for new health claims may slow, as the cost and benefit of investment is examined. Recent estimates of the not-insignificant cost of health claim and nutrient content notifications anticipate that FDA will receive only one or two new applications a year. Also, to the extent that the backlog of notifications has been cleared and the claims covering a broader range of foods, nutrients and ingredients have been approved or dismissed, we may see fewer and fewer notifications coming.
Each new crisis involving an “unsafe” import has resulted in demands for country of origin (or source) labeling (COOL). Evidence from the tomato scare showed that a food crisis will directly impact buying habits. However, absent a crisis about the source of products and ingredients, the impact upon purchase decisions has been more a matter of speculation than proof. Continuing congressional demand for “import safety” legislation--while legitimate, in and of itself--fuels a consumer perception that imported foods may be inherently less safe than domestic products. Increased COOL beginning in September of 2008 may help to provide real information on whether source or country of origin affects a consumer purchase decision.
PF: What do you think the biggest challenges facing the development of new products will be in the next five years?
Valdovinos, TF: One is rising input and food costs. Second, there is a growing competition in the protein arena: menu innovation in foodservice is key, while in retail, new meal and sustainable packaging solutions will be key. Third, we are seeing an increase in operational complexity: consumers want variety, quality and healthier menu items at a value price. In foodservice, there is a need for foods that address the shortage of qualified labor.
Additionally, there are food-safety issues, including exposure and awareness. There is higher consumer awareness, and chefs want to understand the source of their ingredients--from the field to the table. Tyson Foods Inc. [is working to provide] reliable ingredient sourcing, quality protein and exceptional food safety standards, as well as value-added products that save labor costs.
Frankenthaler, DD: Given the current economic climate, the cost of goods likely will affect the entire food industry. In tough economic times, consumers’ desires will be a little more complicated. On one hand, consumers will want comfort and familiar foods; on the other hand, there is a simultaneous desire to "get away" with exotic flavors.
Hostetler, HBS: In the year ahead, regulators and legislators will be faced with the reality to improve the quality and safety of the American diet, without the budget dollars to put many new investigators on the street. Producers will be faced with producing new or reinvigorated products to meet consumer demands for safe, less-fatty, more healthful foods against the potential that any increased costs may not be immediately recouped; and consumers will continue to look for foods which meet their increased demands for safe, healthy and tasteful foods at an affordable price.
PF: What emerging food types or flavors do you see taking prominence in the coming year and in the next 5-10 years?
Valdovinos, TF: Street food walks indoors: We are seeing movement, from Spanish-style, small plates to authentic Chinese dumplings to Middle Eastern flatbreads to the all-American hot dogs, go from the street cart and public marketplaces of the world and finding light at indoor venues. These foods, amongst others, are becoming one giant global smorgasbord. Characteristically, this is the food of “Joe the Plumber” or the average “Set-in-Their-Ways” consumers. They seek quick, filling, tasty, value-based meals that usually are portable. They always order the same foods and go to the same restaurants. They enjoy very basic foods--like burgers and fries--and want speed and convenience. Some even prefer drive-through to dining in, even when with kids. But, for the sophisticated foodie or chef, these food lovers are seeking the next new thing, these attention-grabbing foods that deliver unconventional flavor and fun. Like all ethnic food, these street foods follow an expected path into the American mainstream: first being introduced by immigrants, then sought out by foodies, then eventually getting slightly “Americanized” for the mainstream. pf
www.generalmills.com -- General Mills
www.tyson.com -- Tyson Foods
www.dunkindonuts.com -- Dunkin' Donuts
www.huschblackwell.com -- Husch Blackwell Sanders LLP
The Panel:Jeff Bellairs, director of open innovation at General Mills, has been responsible for the creation of the General Mills Worldwide Innovation Network, a global effort to further accelerate the pace of innovation at General Mills by leveraging externally sourced technologies, ingredients and products. During his 13 years at General Mills, Bellairs has led a number of R&D initiatives in its meals, Big G cereal, Bakeries & Food Service and innovation groups. Prior to joining General Mills, Bellairs worked in R&D for Campbell Soup Company, ConAgra Foods and Mars Inc.
Heidi Emanuel, vice president and senior innovation officer at General Mills, currently leads the company's Strategy and Innovation for ITQ, a cross-functional team with a goal of increasing the company's innovation capacity. She has been with General Mills for 19 years, in traditional R&D, marketing/new business development and corporate strategy.
Stan Frankenthaler, executive chef/director of Culinary Development with Dunkin' Brands, has established a long and respected career, earning national recognition as a top chef and culinary innovator. In 2005, he brought his talent and expertise to Dunkin’ Brands as its first executive chef. He is a graduate of the University of Georgia and finished first in his class at the Culinary Institute of America. A three-time James Beard Award nominee, Frankenthaler has appeared on The Food Network and National Public Radio and has been featured in Bon Appetit, Gourmet, Esquire, Arte Culinaire, Food Arts, Travel & Leisure and Forbes.
Mark Hostetler is an attorney at Husch Blackwell Sanders LLP. Experienced in advising consumer product companies and focusing primarily in the food industry, he has guided producers, advertisers and marketers through regulatory proceedings, product recalls, new product introductions, and new advertising and promotional campaigns. He can be reached at Mark.Hostetler@huschblackwell.com.
Chef A. Mario Valdovinos is director of culinary services, R&D, with Tyson Foods Inc. He initiated the concept behind the product that would win the Prepared Foods’ 2008 Spirit of Innovation--Foodservice Award: Ropa Vieja pot roasts from Tyson, and he was instrumental in seeing the project through to completion. Chef Valdovinos may be reached at email@example.com.