38th Annual R&D Survey: Surprise! More New Product Development

There’s a lot of talk that most fortunes are made during economic downturns. Food & beverage companies must be heeding that advice because, while we expected to paint a glum picture of product development priorities for 2009, the data from our annual R&D Survey indicate otherwise.

While last year fewer than a third of respondents indicated new product development would be the most important target of R&D efforts, this year the figure jumped to nearly half — 48 percent. In second place for 2009 is existing product improvement, at 30 percent.

When you look at the money going into R&D, the above numbers make sense. As a new question for 2009, we asked the blunt “What’s happened to your R&D dept. budget this year?” Nearly three-quarters are, smartly, maintaining (58 percent) or even increasing (14 percent) R&D budgets. Only 28 percent have had their budgets cut.

Here’s where food & beverage processors are far smarter in Economics 101 than any banker or broker. The best time for growth is actually during a downturn, because money and other resources are cheap and your competitors are retrenching. This shows it’s not just a fluke food companies have been weathering the economic implosion better than those in almost any other industry. 

Top issues impacting R&D strategy this year are food safety (No. 1 with 54 percent of respondents, with a weighted score of 5.13), manufacturing cost reduction (score of 4.29), organic/natural (3.31), preventive health (2.97), sustainable/eco-friendly (2.82) and palliative health (2.47).

Despite the above good news on new product development, a touch of caution showed up in a later, similar question. That earlier one asked “Which of the following will be most important this year?” This second question asked “Which of the following tasks is your R&D team most used for?” Last year, 90 percent said they were devoted to new product development, 84 percent to product improvement/reformulation and 50 percent to making prototypes. For 2009, the emphases are 63 percent for product improvement/reformulation, 62 percent toward new product development and 23 percent toward making prototypes.

On the flip side, devoting R&D energies to cost-cutting actually dropped — significantly — to a little more than a third (39 percent) compared to last year being greater than half (53 percent). But that’s still a lot of effort going into slashing expenses.

(Note: Of all the cost-cutting strategies noted in the responses, perhaps the most unusual — and intriguing, if it works — came from a Paraguayan company connected to the Universidad Naçional de Asunción. It will try to extract phytochemicals from vegetable waste.) 

Who’s the decision-maker?

Once again, 70 percent of respondents to our survey report a centralized, corporate level decision-making process regarding new product development, leaving 30 percent reporting new product development decisions are the realm of individual business units or others lower on the totem pole. 

Two-thirds of companies responding still have a formal product development team. That team also still is predominantly R&D, followed by Marketing, then Manufacturing and Management, with the remaining titles holding their same positions as before.

Breaking down which departments set product development goals showed but slight change over last year. Corporate brass and management (CEO/CFO/President and General Management) held the reins a little tighter, primary goal-setters for 92 percent of teams versus 89 percent last year. As a result, R&D’s power slipped from 81 percent to 74 percent and Marketing/Sales from 72 to 66 percent. 

In answering “Does it fit our brand?” Marketing and Top Brass divvied things up evenly, sharing 63 percent of that decision; last year Marketing was on top by a couple percentage points. Marketing still decides if a product or reformulation fits the marketing strategy, and of course the “Can we make money?” question is still the realm of the head honchos — with one odd exception: This year, outside suppliers influenced that decision for 44 percent of respondents, putting them ahead of even internal R&D and Plant Ops people. Hmmm. This is significant, implying a stronger role for suppliers in the economics of new product/formulation decisions.

We also asked for the first time this year who gets to specify packaging. It yielded a mildly unexpected answer: For nearly two-thirds of companies, Manufacturing Operations leads the decision on packaging, not Marketing and Sales. In fact, fewer than half (46 percent) let marketers lead on that important aspect of how a product looks.

Suppliers have moved to the forefront in another aspect of R&D. When it comes to sourcing the information crucial to ongoing product development or reformulation, the ingredient people slimly edged out internal research and focus groups, with the former going from 63 to 67 percent and the latter dropping from 71 to 66 percent.