The key word for R&D in food companies is more: more new products, more product improvement, more attention to regulatory detail, more variety, more excitement, and in some cases, more hands to share the burden.
Despite concerns about terrorism, their own jobs and the economy, almost 42 percent of the research and development officials who answered our 33rd annual Top 100 R&D Survey were able to add at least one person to their R&D department in the past year. Roughly 19 percent lost at least one person from the department, and about 39 percent remained the same.
Our survey was sent to all companies in the Food Processing Top 100 list of the largest food and beverage processors in the U.S. and Canada. Recipients were vice presidents of research and/or R&D, research directors, directors of quality control/assurance and managers of specific research projects. It was circulated in August and September, about the time most were heading into their companies’ last fiscal quarter with a pretty clear picture of where R&D would end up in 2004 and where the budgets would take their departments in 2005. A total of 250 surveys were sent out; 109 were returned, representing 87 of the Top 100 companies.
In addition to an extra body or two, it found research departments:
- Focusing on truly novel products rather than safe line extensions.
- Coping with shorter development cycles.
- Making more use of outside resources, especially supplier expertise.
- Expecting to develop more products next year than this year.
Kraft, for instance, served notice at an investor conference in early September that it will be cranking out more new products. “While we remain focused on driving out costs through productivity, the key to delivering sustainable earnings growth over the long-term in the food industry is consistent revenue growth,” said Roger Deromedi, CEO of the largest U.S. food company. “To that end, we continue to evolve our new product development process by focusing on fewer, bigger and better ideas and improving our speed of execution.”
Kraft has always formed close alliances with their select suppliers and has always had a fairly formal product development process. The number of new products on its plate is daunting, and the company’s interest in organic products, revealed by Deromedi at that conference, will further strain resources.
Still teams, but more virtual
The product development process, for Kraft and for most other large food companies, involves several departments and includes some international activity and outside suppliers, as well. But the process has changed somewhat, especially in the past year or two.
The concept of teams has been around for decades. As they evolved, these teams have become more wide ranging -- cross-functional -- but also virtual. Members in many of these groups no longer pick up a team notebook and attend a meeting. But these in-person or virtual members represent not only research but also (in descending order) marketing, plant operations/engineering and finance.
These collaborative teams have adopted a mind-set that takes them from the business of the team to the business of the firm. This means that a number of the R&D staff are no longer, strictly speaking, strictly food scientists. As they pick up additional credentials, those credentials are often in marketing, finance, engineering or information technologies.
The backbone of the team remains a group of similarly minded individuals who have to invent a product or fix a problem. About 85 percent of the groups use teams for cost cutting. About 60 percent use teams for improving product quality, with shelf-life extension an often-cited goal. Teams also are put to work for developing product prototypes (20 percent) and even developing package design (22 percent).
Teams or alliances are designed according to their uses. About half of the companies use more formal organizations, with all members starting work on a given project at the same time and continuing through a pre-decided end-point. The other half generally phase disciplines in as needed.
With so many different personalities from different backgrounds, the true R&D people we surveyed lodged an occasional complaint about personality difficulties on teams, but the members generally noted they worked things out -- usually.
What drives your company?
How do R&D personnel see their companies? We asked section leaders, research directors and chief research officers whether their companies are primarily technically oriented, marketing oriented, manufacturing oriented or finance oriented. Most of the research managers say their employers primarily are marketing oriented. Companies that were global, and especially those headquartered in Europe or Japan, generally feel their companies are financially oriented. The 10 percent of companies that were smallest in shipments generally believe their companies are manufacturing oriented.
Most of the research departments report to the CEO of the company or to the general manager of an individual operation. But 9 percent of the respondents report to marketing. If research occupies different positions within companies, its functions change, too.
We asked which activities were considered part of R&D. Of course, 100 percent say they primarily are involved with product development, but about 72 percent of the departments included pilot production, and 56 percent included initial plant production. Sixty percent of the departments have partial responsibility for regulatory activities, and about 17 percent have some responsibility for market research. Often, the top research officer or a representative is involved with strategic activities, but generally not as a representative of the research department.
Most research departments prefer to hire people with at least a bachelor’s degree. Larger companies hire master’s-level personnel, and quite a few hire more Ph.D.s. The supplier community, especially, seems to hire Ph.D.s in preference to others—quite possibly because most retail and foodservice companies ask for technical assistance from their suppliers. Technical assistance has gotten more complex, and companies need it faster, so more basic research is required to solve complex problems quickly. But most research directors and vice presidents of research are Ph.D.s, or at least master’s-level scientists with experience, sometimes plus an MBA.
While research departments generally are growing in headcounts, they also are taking on more responsibility and generally doing more. Seventy-four percent of the respondents expect to be asked to develop more products this year than last. Only 19 percent think they’ll develop fewer products.
Shorter and longer times
The development time for new products overall appears a little shorter than in our previous surveys â€“ paradoxically, there also was notable growth in projects that take a full year. With 68 percent of respondents attacking a portfolio of new products (which scatters development times somewhat), 18 percent of the R&D teams say “most” of their products are developed in about three months (that number was 5 percent in last year’s survey—see infographic, attached as a PDF file), 14 percent of teams are wrapping up products in six months, another 14 percent are ready to launch in nine months and 54 percent have the luxury of working a whole year on a new product.
That increase in the full-year development process is explained by a number of research directors who tell us they are looking for more “outstanding” products, with clear differentiation from the mass number of new products. “We’re looking for home runs,” notes one research director, “products with technical content that can’t be reproduced immediately by competitors. It costs too much to make little products. They should be blockbusters that will be around for a while.”
So, how do you build a blockbuster? Most of those R&D teams get some help, and not just internally but also from outside the company. Every company surveyed said it will call on suppliers for higher levels of support this coming year.
(Supplier companies say they expect this, and may prioritize assistance for customers. Criteria for prioritization are complicated. Some say prioritization will be by special agreement, such as if the vendor is a preferred supplier, by profitability or by other financial relationships.)
When asked which organizations provide the most help in product development, 100% of the companies say they depend on suppliers, 62% depend on academic institutions, 32% on government agencies, 32% on industry and society meetings, and 62% depend on patent information. Consortiums are helpful to 32% of companies, and journals and trade publications are used by 48%.
While money has been tight during the past few years, a few companies have increased the size and complexity of their research campuses. H.J. Heinz Co. recently announced plans for an expanded international research and technical facility, moving the Heinz Food Innovation and Quality Center -- also known as the Heinz Food IQ Center â€“ from downtown Pittsburgh to a suburb in mid-2005. It will focus on a broad range of products, including frozen foods and soups.
“The 100,000-sq.-ft. facility will become our international center for food and nutrition research, hosting some of the world's leading experts in nutrition, cuisine, quality assurance and product and packaging design,” according to Heinz Chairman William Johnson.
While money remains tight, capital equipment budgets don’t look as squeezed as they did at this time last year, respondents indicate. With a little more money in hand, companies and departments are looking ahead and, especially when planning for capital equipment, they try to predict the general types of products and projects they will be working on. A whopping 98 percent plan to be more involved with developing healthy products, while 82 percent expect to modify or reformulate existing products. Then there’s the drudgery: 88 percent expect to be more involved with regulatory questions and 44 percent will be attending to online analysis (see infographic).
The crystal ball for ’05
One interesting outgrowth of this question is that fewer companies expect to be doing more line extensions -â€“ a two-thirds drop from last year’s responses. In several phone interviews, it became clear a growing number of companies have limited interest in line extensions anymore. While the timeline for new products has shortened and line extensions once were viewed as quick and safe base-hits, R&D teams and their upper management appear to have decided that endless line extensions cannibalize product lines and squeeze shelf-space. They are clearly looking for better products that will have longer life cycles, and they believe enhanced technical content staves off immediate competition.
On the other hand, some companies that have recently taken over smaller processors are still in the line-extension business, especially if the products gained from the smaller firms have strong brand name recognition and few extensions. Of the companies in the upper 30 percent (based upon sales), all had bought a company within the past few years and are in varying stages of absorbing the new members of these acquisitions.
Polishing their crystal balls, the R&D officials we surveyed have some definite ideas about what products would be popular in five years. We asked about new ethnic foods, microwavable foods, fortified foods, functional foods, reduced-fat foods, reduced-carb foods, fat-free foods, natural or “wholesome” foods. While most of the companies indicate their portfolio will include numerous new food types, the exceptions were most informative.
Less than 20% of the respondents believe they will be working on reduced-fat or fat-free foods. When questioned, several of the respondents say lipid technology is more likely to involve fatty acid ratios than fat content per se.
While nearly 60% of the respondents expect to working on lower-carb foods, several comment that quality of carbohydrates was more likely to be front and center than quantity of carbs, at least for longer-term development.
Microwaveable foods are on the drawing board for about half of the companies, but microwaveability seems to be a packaging concept, instead of being a primary descriptor. Functional foods evoke more interest than fortified foods. Said one research director, “If we’re fortifying, it’s more likely that we are aiming for a structure-function claim than a straight fortification concept.”
A question that we didn’t ask was the impact of nutrition policy. Nevertheless, an unsolicited comment describes this new concern, possibly triggered by the new Dietary Guidelines draft. “We’re looking for products that narrow the gap between what consumers like to eat and what they know they should eat,” comments the technical director of a large food company. “We think consumers are ready for those products that assist their health, but taste good enough to eat every day. Especially if they’re very, very convenient.”
Healthful, tasty, convenient. That’s all it takes.
Web Editor's Note: To see the five infographics that accompany this article, please click the "Download Now" button below.