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The race to innovate: are you a competitor?

12 December 2016

Research by Leatherhead Food Research and Oakland Innovation shows a food and beverage industry on the cusp of significant change - with nimble start-ups entering the game and a more demanding consumer. For established players the battle to remain relevant with consumers is on! 

Leatherhead Food Research has pulled together the insights from 27 qualitative interviews with food and beverage professionals in the innovation space to give a snapshot of how the industry is approaching innovation today. The research exclusively for Leatherhead members shows how companies are preparing themselves to weather the perfect storm of demand and supply side challenges.

On the demand side, interviewees who took part in the research talked about a more demanding and fickle consumer, who is not loyal to a particular retailer or brand. The internet has enabled people to have what they want, when they want it, and consumers now expect this choice and accessibility to extend to their food and beverage products. The growing consumer interest in personalisation was a key theme. One marketing VP for a branded company said: ‘consumers are on the driver side and the industry has to be way more humble… Before we had one brand that fits all and now it’s one size fits me.’

From the supply perspective, the large brands and manufacturers are no longer the competition to watch. It is the new type of competition, from small start-ups, who are the threat. These new companies can be more nimble than established players. With low barriers to entry, they can tap into an unmet consumer need, develop a strong brand, and bypass the retailer to reach their customer directly. 

The concern facing many was that their companies might struggle in their current form to deliver what the consumer wants in the long term. Consumer calls for locally-produced, minimally-processed, personalised products are challenging for large food and beverage companies set up for low-cost, mass production to deliver. Hampered by legacy factories and equipment, and a traditional business model, it is difficult for the large brands to respond to these new consumer demands. They cannot, for example, easily or nimbly change their whole supply chain to deliver consumers locally-sourced products.

Preparing for change
Rather than putting their heads in the sand, many are, in the most part, preparing themselves for a food and beverage industry which will look very different to the one we see today. They are caring for their existing product portfolios, while watching the trends brewing on the horizon and considering how they can prepare their businesses to deliver those trends.

What might those trends be? Retail environments where we experience products rather than buy them? Smart homes complete with fridges which can re-order products and turbo-ovens which can steam, cook and microwave? Global consumers whose interests define them more than their geography and who are willing to pay more for products which enable them to create meaningful experiences with their friends and family?

One of the hardest questions for interviewees to answer was how long the status quo will continue to deliver profit for their companies. Companies were thinking about the new manufacturing models which they might need to deploy to meet the changing needs of consumers. Manufacturers had work streams to consider what their factories of the future will look like and the type of equipment and level of automation which will be needed in those factories. One manufacturer said: ‘We have automation on our agenda – not just the odd bit of equipment, but actually thinking about the factory of the future.’ 

There were also broader discussions about whether it is feasible to manufacture closer to the consumer. Some companies were considering the options for manufacturing through smaller companies - taking advantage of the economies of scale as a large organisation while piggybacking on the manufacturing flexibility enjoyed by small companies. Other manufacturing options included options to manufacture in store and options to manufacture at home, for example using 3D printers.

A new democratic approach to innovating shows how the innovation community is getting itself ‘race’ ready. They realise that the ivory tower mentality will not serve them. They are going to have to cast the innovation net wide and use the brainpower of the very best people, both in and outside the company, to solve some of the most challenging problems which the industry has faced. 

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