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Food firms falling behind in ability to innovate?

09-May-2005

The food industry is falling behind in its ability to innovate, claims an article in this week's The Economist.

In 1997 to 2000 innovations in food and beverages outpaced those in other consumer-goods market, but according to a new study by Bain, a consultancy, this figure has since been reversed.

The article states that the most innovative food products once would have gained average sales of $150m (€116m) in their first year, compared with $100m for the most innovative personal-care products.

But since 2001 first year sales of top new food products have fallen to $120m (93m), while sales of such personal-care products have risen to $150m.

Innovation is key to driving sales in the increasingly competitive food industry that sees own-labels from massive retailers such as Tesco and Carrefour putting growing pressure on growth for private-label firms, even the giants like Nestle and Unilever.

Bain calculates that personal-care companies spend an average of 2.6 per cent of sales on R&D compared with 1.6 per cent by food and beverage companies.

Recent data on research and development (R&D) expenditure from Europe's statistic's gathering body Eurostat consolidate the Bain findings.

Food makers are spending less percentage wise, between 0.5 and 1.5 per cent, although in its year-end results in January Nestle cited R&D costs were up 0.3 per cent to 1.6 per cent of sales, or CHF1.4 billion on total turnover of CHF 87 billion.

At the ingredients end, suppliers in Europe appear to invest between about 2.8 per cent and 12.9 per cent of their sales on R&D.

Line extensions remain the most popular route to express innovation. The products can be more successful in terms of sales than new products and offer less risk than the launch of a totally new concept.

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