Innovation is the foundation of every industry, including the food and beverage industry. What has enabled increased production to accommodate growing populations? Innovation. What has helped extend the shelf life of products, such as through vacuum packaging? Innovation. What has helped eradicate foodborne bacteria through technologies such as germicidal ultraviolet light? Innovation. And the list goes on.
Innovation is not just desirable for the food and drink industry. It is essential. And as the world’s population continues to grow and climate change continues to threaten the future of food production, the importance of innovation will only increase. Yet recent figures show that investment in innovation in the food and drink industry is declining, and perhaps more worryingly, it has been declining for some time.
“All consumer goods industries are seeing a decline in innovation, but food and drink is among the worst offenders,” Jonny Forsyth, senior director of food and drink at market research firm Mintel, told FoodNavigator. “True innovation (new launches or brands) accounted for 26% of global food and drink launches in the first five months of 2023, compared to just 33% pre-COVID (2019).”
Moreover, given the magnitude of the decline, this appears to be just the tip of the iceberg.
“The decline began even before the pandemic,” says Forsyth. “In 2009, the year of the global financial crisis, a narrow majority (51%) of all new launches were innovations. By 2016, that number had dropped to 38%.”
And this change in behavior can be observed at all stages of the industry: researchers are raising the same concerns.
“There is clear evidence of a decline in innovation in certain segments of the food and drink industry,” Jack A. Bobo, director of the Food Systems Institute at the University of Nottingham, told FoodNavigator.
So why is investment in innovation declining? And can the food and beverage industry sustain a prolonged lack of innovation?
Why is innovation in the food and beverage sector declining?
It seems that there are several reasons for the ongoing decline in innovation. And while some of these are trend-related and therefore less of a cause for concern, others are more alarming for the industry as a whole. Why? Because they point to fundamental problems with the future of food safety.
Not surprisingly, the main reason for the decline in investment in innovation in the food and beverage sector is financial instability.
“Economic factors have a big impact,” says Bobo. “The current economic climate, characterized by inflationary pressures and restrained consumer spending, has made investors more risk-averse. They are less willing to finance unproven or experimental products, leading to a slowdown in the development of new ideas.”
In addition, industry consolidation contributes to hampering innovation.
“Because there are fewer players in the market due to mergers and acquisitions, there is less competition, which often leads to fewer incentives to innovate,” says Bobo. “Larger companies, focused on maximizing efficiency and cutting costs, may not place as much emphasis on the kind of bold, risky innovations that smaller startups seek.”
Another problem concerns the regulation of the food industry. Although essential for the health and safety of consumers, it appears to stifle innovation and experimentation.
“Regulatory challenges play a significant role,” explains Bobo. “As governments tighten regulations on food safety, labeling and health claims, companies are becoming increasingly reluctant to experiment with new ingredients or production methods. The regulatory landscape can be complex and costly, making innovation a risky endeavor.”
In addition, changes in consumer behavior are impacting the industry’s investment decisions. While this is understandable, it risks leaving the industry ill-prepared for a potential return of consumer interest.
“One key indicator is the decline in investment, particularly in areas like alternative proteins, where enthusiasm has waned,” says Bobo. “Initially, products like plant-based meat saw a surge in interest and investment, but recently this has slowed due to weaker than expected consumer growth. Companies like Beyond Meat, once considered pioneers, have faced challenges that have made investors more cautious.”
And while it may not be the most important issue of our time, this lack of innovation could also make food and beverages less interesting to consumers.
“In some of the more traditional industries, such as consumer goods, there is less innovation. Here, companies focus on incremental improvements rather than groundbreaking new products,” says Bobo.
In addition, some food and beverage manufacturers believe they have reached the limit with certain products.
“The scope for innovation is limited in already crowded areas,” adds Bobo.
Despite this, the food and beverage industry continues to invest in innovation. In particular, artificial intelligence (AI) is critical for all stages of food production from agriculture to retail. However, this does not change the fact that investment in innovation has been declining for more than a decade.
So where is the food and beverage industry and will we see a return to investment in innovation in the future?
What are the long-term consequences of the decline in innovation in the food and beverage sector?
The biggest concern about the decline in innovation in the food and drink industry is the potential failure of manufacturers to prepare for the future. There is also the very real risk that consumer confidence in the industry will be further eroded as prices continue to rise while quality remains unchanged.
“Most of the growth in food and drink sales over the past 18 months has been driven by price increases. But what have consumers gotten in return for these increases? Not much, and sometimes – in the case of shrinkflation – significantly less,” says Mintel’s Forsyth.
However, this could also create opportunities for startups and smaller companies.
“The rapid development of artificial intelligence (AI) and e-commerce could play a role here,” says Forsyth. “Both are lowering the barriers to entry for smaller, direct-to-consumer brands that can build their brand equity and sales online and develop a detailed understanding of their consumers before moving into brick-and-mortar retail where they have a greater chance of success.”
In fact, the emergence of artificial intelligence could help restore the balance of power between smaller and larger organizations and strengthen innovation.
“AI means it is potentially less of a downside due to its smaller size because algorithms can help drive innovation, create marketing campaigns, gain consumer insights and assist with customer service,” adds Forsyth.
And industry experts seem confident that investment in the food and beverage industry will recover.
“I am convinced that innovation will return,” says Bobo. “The food and beverage industry has always been adaptable, and as consumer demands – particularly around health, sustainability and convenience – continue to evolve, companies must innovate to remain relevant. As economic conditions improve and new technologies emerge, we are likely to see a resurgence of innovative ideas.”
But what can be done to help the industry innovate in the face of existing challenges?
“Promoting a culture of creativity and risk-taking in companies, along with supportive policies and a favourable investment climate, is crucial to sustaining innovation,” says Bobo.
