Dive Brief:
- While disruptive food products and brands attracted interest from food companies and funds from a variety of investors in the past, the appetite for these types of innovations seems to be waning, a new Rabobank Research report states.
- Between 2010 and 2022, there was a 288% increase in the number of deals in consumer food innovation, researchers found. But many of the investors who participated in these funding rounds have paused similar investments in this sector in 2023. Compared to a year prior, deals through May 2023 are down 22%.
- Innovation right now — and for the immediate future — is likely to be smaller changes or improvements made to existing products, the report states.
Dive Insight:
Prior to 2020, “disruption” was seemingly synonymous with “innovation” in the food and beverage space.
Investors and Big Food alike supported brands that used new technology, relied on nontraditional ingredients or achieved a mission-oriented goal. These brands brought something completely new to food, and their creators and investors were relying on consumers being drawn to them. Some legacy food companies opened new units to focus on funding, creating and acquiring new products and technologies.
While there has been some growth in these areas, many of the investments have not paid large dividends, Rabobank’s report points out. Actual investment capital has tightened over the last few years as interest rates, commodity costs and inflation have increased. Some ingredients have been hard to come by as supply chains have changed, and labor shortages have made it difficult for manufacturers to operate, the report states.
Consumer behavior has also not been what was anticipated several years ago. Inflation has led consumers to put more of an emphasis on price when they are buying items — or as the report puts it, make “value-based purchasing decisions rather than values-based” ones.
But another part has to do with actual consumer behavior. While products that are plant-based, made from novel ingredients or are carbon neutral sound exciting, consumers don’t always purchase those in place of their standard favorites. What consumers actually want, the report states, are products that go back to the basics, are minimalistic and are less processed.
Most of Big Food’s recent innovation has included smaller and more incremental ideas. Some of these include bringing existing flavors to other products, like PepsiCo extending its Doritos brand into the dip and jerky categories. Other innovations include making new shapes and sizes for already popular products, like General Mills launching mini versions of Trix, Cinnamon Toast Crunch and Reese’s Puffs. And others still are about bringing a new twist to an existing product, like Heinz Spicy Ketchup.
Consumers’ relationship to food is personal and deeply imbued with emotion. While the last few years have shown that most people may not be ready to make drastic and immediate changes in what they eat or drink, they are often willing to make more gradual shifts. While most investments in new and disruptive segments of food did not result in huge and immediate returns, items including plant-based and more value-driven products are gaining ground with consumers.
In future years, investors and Big Food may be a bit slower to chase after the “next big thing,” but more modest investment, support and partnerships may help foster true disruption at a more moderate pace.
