Is innovation returning to food and beverage?

The food and beverage industry has been stuck in a decades-long innovation downturn. Investment has been limited and new product development at lower than usual levels.

“Declining innovation has happened across all CPG industries, but food and drink has been one of the worst offenders,” said Jonny Forsyth, senior director of food and drink at Mintel, when discussing the issue last year.

But things are starting to turn around, with industry experts seeing a noticeable shift in behaviour.

“There are definitely signs of recovery,” says Richard Peake, managing director of Merchant Gourmet.

This is good news for consumers as data from Mintel shows 38% of adults regularly look for new food and beverage products to try. And that figure rises to almost half for Gen Z consumers.

“There’s real consumer demand for exciting innovation,” says Mintel’s Forsyth.

But the situation isn’t straightforward and some sectors are turning things around quicker than others.

Innovation in the snacking sector is growing faster than other areas of the industry. (Image: Getty/Jelena Danilovic)How is the food and beverage industry boosting innovation? There’s a clear innovation divide between risk-averse market leaders and risk-taking start-ups.

“Challenger brands are leading the charge,” says Merchant Gourmet’s Peake. “Disruptors are popping up everywhere and are genuinely innovating and moving the dial.”

Meanwhile bigger industry players are struggling to bring new ideas to market. The risks associated with launching a genuinely new product, such as high costs and a low success rates, proving too hazardous.

And that risk increases in more mature markets, including Europe and North America, where competition is stronger.

“The danger with being a big, iconic brand in a predictable category is that you stop truly innovating,” explains Peake. “You stop placing big bets based on trends and your pipeline becomes an extension of an existing concept. This is not innovation. At best, it’s renovation.”

But while they might be slower to innovate, some industry heavyweights are stepping up to do their bit.

Swiss multinational, Nestlé just announced plans for its Singapore R&D department, to focus efforts on affordable nutrition.

Similarly, snacking giant, Mondelēz International, created ‘SnackFutures Venture, an independent innovation and venture hub, to “disrupt” the snacking industry.

Though food and drink innovation is reduced, some segments buck the trend, such as snacking and functional drinks.

And even this presents differences, as European producers of functional drinks are falling behind the rest of the world, due to stricter legislation. Meanwhile the US, China and Japan are forging ahead unencumbered.

Functional drinks, including smoothies, have become a focus for innovation and new product development. (Image: Getty/Julia_Sudnitskaya)The future for innovation in food and beverageThe rate of innovation in food and beverage is expected to accelerate, with the integration of AI into the industry. In fact, Mintel’s Forsyth predicts a “massive ramp up” in innovation, leading to increased speed and accuracy of new launches, as well as speedier faster ingredient and flavour development. And it’s already helping to create entirely new food and beverage categories, with manufacturers like NotCo, proving its value. The Chilean startup successfully created and launched its plant-based, NotMilk Chocolate, in just five months.

“The rapid advances in artificial intelligence (AI) give food and drink brands a new tool to create much more disruptive innovation, at a fraction of the cost and time,” says Forsyth.

However, the industry does continue to face innovation challenges, some of which are tougher to overcome.

“Food and drink manufacturers have to cope with complex supply chains, low margins and the need for temperature control when delivering fresh food and drink,” says Mintel’s Forsyth. “The barriers to entry are therefore much greater than if you are starting a business in categories like beauty and personal care, household goods or vitamins and supplements.”

Whether the return to innovation continues or not, remains to be seen, but industry experts are urging manufacturers to embrace this shift.

“Encouraging a culture of creativity and risk-taking within companies, alongside supportive policies and a favourable investment climate, is crucial for sustaining innovation,” says Jack A Bobo, director of the Food Systems Institute at the University of Nottingham.