Despite the economy on tenterhooks (Recovery? We're in recovery?) and out-of-orbit fuel prices, the most prominent sign from this year's Annual R&D Survey is one of guarded optimism. "New product development" is -- for the third year in a row -- the most important target for R&D among food & beverage processors. This in spite of a slight drop from last year's 49 percent to 47 percent. This means rather than adopt a "duck and cover" approach to keeping their companies afloat, the decision-makers recognize consumers still are open to, and desirous of, new food & beverage products.
This does not, however, imply there's no impulse to circle the wagons during the throes of economic upheaval. "Cost control" gained 3 percentage points, moving up from fourth to third place among R&D priorities for 2011, and safe bet "existing product improvement" was in second, gaining 4 points over last year. Paradoxically, "product line extensions" dropped the most, down 4 percentage points (to 6 percent). Also down significantly is "cleaning up current products," column, down more than 3 points to just under 9 percent this year.
With at least some concern for economizing, budget figures landed on nearly identical spots as last year. Nearly 53 percent said their R&D department's budgets are the same this year as in 2010 (51 percent saw a raise this time last year over 2009), 22 percent say it's been raised (identical to last year's response) and 14 percent saw a cut (1 percentage point less than last year).
A recent New York Times/CBS News poll shows consumer confidence is at its lowest since the current administration took office (and that was in the depths of the worst economic depression since the 1930s). But coming back to the fact that nearly half of the decision-makers in the $500 billion-dollar food industry plan to devote their R&D energy to making new foods & beverages, there will be lots of good treats to enjoy should Rome continue to smolder.
Recent Nielsen polls have shown a slowdown in growth for "green" issues of organics and sustainability, yet surveys by nearly all resource groups reveal that businesses are eager to buy into the sustainability paradigm—not just because of a desire to save the Earth, but because -- let's face it – it's great marketing and if it's out of the pipe it's out of the pocket. When you've stripped your labor costs to perilous minimums and ingredient and production costs are rising, there's only one way to hold on to profitability: Stop wasting money.
So why, as with last year, do only 4 percent of respondents tell us sustainability issues are their most important R&D targets? Several reasons come to fore: Food processors consider this an economic issue as opposed to a research & development concern; also, as the Environmental Defense Fund pointed out at the end of 2009, there are barriers and challenges that still need to be untangled, specifically regulatory compliance, measurability and tracking. These challenges make sense when the "it takes money to make money" factor is considered.
Last year (see our 2010 report) we invoked the business precept of economic downturns being the best time for growth. This is because prices of labor, ingredients and materials are comparatively low while demand and need inevitably rise. By way of example, we cite the success of the Natural Products Expo West show (see our coverage), which just occurred in March. Sure enough, this year's expo was the best in several years, with record attendance (60,000 exhibitors and attendees) and more exhibitors than ever. More than that, the mood was downright exuberant throughout most of the crowd, especially among the small and boutique food and beverage manufacturers.
What will have strong impacts on processors as they try to stay ahead of the challenges of 2011-2012? The survey asked respondents to rank seven key concerns and foci of their R&D strategy: Food Safety, Cost Reduction, Palliative Health, Preventive Healthy, Sustainability/Ecology/Fair Trade, the new USDA Dietary Guidelines and Organic/Natural products. Food Safety remains the strongest strategic focus of food & beverage manufacturers moving forward, with nearly half calling it No. 1. Cost Reduction came in second, also the same as 2010.
But filling up the next tiers were a drive to ecological and physical health that includes attention on, in order, organic/natural foods, factors of sustainability/ecology/fair trade and the new Dietary Guidelines. Palliative Health and Preventive Health rounded out the rest of the issues processors feel will have the greatest impact on their R&D strategies for the coming year. Still, comments were few regarding specifics and here it's worth speculating that mixed communications messages could be a part of this.