Image: Rabobank senior consumer food analyst Thomas Bailey.
In the next few years, the global consumer food industry will see a shift in innovation strategies with fewer total “disruptive” innovations as large food companies – including those here in Australia – refocus their attention on incremental changes, according to a new report by agribusiness banking specialist Rabobank.
In the new report, Disruptive Food Products Prove To be More Hype than Bite, Rabobank says the consumer food industry has witnessed an explosion of disruptive innovation for food products over the past decade – with examples including plant-based meats, insect protein bars, synthetic fat replaces, and precision fermented milk proteins – but that this disruption has already reached its peak.
“Weaker demand for disruptive innovations, economic uncertainty, and the higher interest rate environment have exacted their toll on many disruptive products coming to market,” Rabobank senior consumer food analyst Thomas Bailey said.
“The same group of investors that drove the 288 per cent increase in deals from 2010 to 2022 appears to have put the brakes on deals so far in 2023.”
“Moving forward, disruptive innovations will likely face more rigorous evaluation, resulting in fewer but potentially more successful disruptive products that have endured more intensive vetting.”
Incremental change in food innovation is back
According to the report, consumer food companies will likely focus more on commercially viable incremental innovation, prioritizing improving taste, convenience, and health rather than being caught up in the hype of disruption.
Mr Bailey said incremental innovation – creating new value through minor product or service adjustments – is considered safer.
“In food, incremental innovation looks like line extensions, packaging changes, new flavours, and functionality twists,” he said.
“The main benefit of incremental innovation is that it offers more immediate benefits: supply chain simplicity, sustainability, cost reduction, and generally keeping customers happy and interested. Furthermore, it is better suited to keeping prices low for consumers in an inflationary environment like the one we have today.”
The report says some big names in the food space have recently announced moves to incremental innovation.
“American food maker Chobani has spent years expanding from Greek yoghurt into coffee, dips, creamer and oat milk but have recently announced they will focus on innovating in their existing core product range which means incremental innovations in flavours, packaging formats and convenience,” Mr Bailey said.
“We’ve also seen McDonalds announce that it will shift its innovation strategy to one that is incremental, for example McDonalds will be revamping older products with a twist, such as the limited Chicken Big Mac, and optimising existing traditional products for taste.”
Fewer, But Better, Disruptive Innovations Moving Forward
The report says it is safe to assume that those who continue to invest in disruptive innovations will need to exercise even more prudence when it comes to food products.
“They will need to take more steps to ensure product alignment with consumers in terms of taste, health, and convenience. Investors who choose to continue to seek out disruptive innovations will be a good source of insight for large food companies that are currently shifting to incremental innovation but need to keep an eye on the longer-term horizon”, Mr Bailey said.
“While disruptive innovations underperformed against our expectations this time around, the quality of the disruptive food products will be higher in the future and may catch us off guard.”
Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1000 offices and branches.
Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 90 branches throughout Australia and New Zealand.