McGladrey LLP, a Chicago-based accounting, tax and consulting firm, released its 2014 McGladrey Manufacturing & Distribution Monitor: Food and Beverage Report.
Study authors conclude that the food and beverage industry is a dynamic sector with an appetite for growth and innovation. As developing and vibrant as it is, however, the sector must also contend with business challenges such as constant consumer shifts, regulatory compliance demands and commodity risks.
The 2014 report identified the sector's latest emerging trends, as well as key opportunities and insights decision makers should know for future planning and growth. It covers such topics as new product innovation, digital marketing, regulatory and tax concerns, information technology and mergers and acquisitions.
The following commentary is excerpted from the report’s product innovation overview.
How new is new? Many new products in the food and beverage (F&B) industry represent line extensions of existing popular products. A key ingredient is changed or added, the base product is applied to another food type or the product is resized or reconfigured; products such as Heinz Jalapeno Ketchup, Yoplait Frozen Yogurt Bars and Ortega Fiesta Flats Flat Bottom Taco Shells are examples of the marketing imagination of F&B companies.
Approximately, 66% of F&B executives surveyed will expand their customer bases with new brand,
sub-brand (separate, but complementary brands that tailor a product to a particular market sector or niche) or private label products in order to maintain or grow sales and margins. In addition, one-half of executives say new products and line extensions are important for their company’s sales growth. Innovation is key to new product development, with 62% surveyed saying they would create new products to address the hungry consumer market.
Many new products and line extensions are being developed in response to healthier eating trends. Also popular is promoting the health benefits of existing foods, cited by 33% of executives. Pairing healthy products and convenience is an emerging trend led by companies like Nature Box, a company that delivers healthy snacks direct to consumers’ doorsteps.
In many cases, innovation is not only being driven by the manufacturer, but also by their retail counterparts. It is very common for retailers to demand that food manufacturers develop unique products for sale in only their stores, which may include exclusive flavors or differentiated packaging.
Executives will need to be increasingly cautious, though, about the terms they use to market products. Just as standards and certifications have developed for organic foods, other adjectives are likely to be regulated as well. For example, more than 20% of new grocery products in 2013 claimed to be natural and the FDA is likely to establish a labeling standard for them.
“We are seeing more regulatory matters impacting our clients in the food and beverage industry, including Proposition 65 in California that requires companies to notify consumers regarding inclusion of certain ingredients in their products,” notes Cristin Singer, partner and Food and Beverage National Leader at McGladrey. “We expect there to be continued scrutiny of transparency around ingredients and encourage executives to carefully consider federal and state regulations as they develop and market their products.”
Right behind changing the actual product, respondents also indicated that package style and size are important strategies for growth. This response is in line with increased products offered in different sizes, such as a 7.5oz canned soda product and 100-calorie packs.
The 2014 McGladrey Manufacturing & Distribution Monitor was conducted using an online questionnaire, promoted by McGladrey and various organizations to manufacturing and distribution companies. There were 1,147 total valid respondents to the 2014 Monitor survey, with completed questionnaires received in February and March 2014. U.S. food and beverage participants totaled 102.