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.
Sustaining green
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.
High impact
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.
Then we put the question another way: "What are the big, big issues your team will face in the coming year?" This time processors put "Healthier/Better-for-you Foods" at the top, with 56 percent calling it No. 1. Right behind were Consumer Trends at 50 percent. New Regulatory Issues made for a close No. 3 with 45 percent.
That's where the new USDA Dietary Guidelines enters the picture, with almost two thirds of those responding saying the new guidelines are reasonably important and 13 percent calling them, "huge" and acknowledging they will "impact nearly everything we do." So we added a question to coincide with the guidelines' January release: "What ingredients noted in the Dietary Guidelines will you be working most on this year?" It's probably no surprise that removing sodium was Job One. Nearly half of those polled on this question targeted this ingredient.
Tied for second place were the removal of added sugars and trans fats, with the addition of fiber a fraction of a percent behind them (although also at 25 percent due to rounding up). Saturated fats reduction was close behind at 23 percent. (Respondents could choose more than one answer.)
Worth mentioning on the guidelines track are that nearly one fifth (18 percent) of processors say they will be working on replacing refined grains with whole grains, and 15 percent want to add more fruits and vegetables as ingredients to their products and product lines.
Says who?
Seven in 10 of our processors noted they have a formal product development team. That team, no surprise, is led by R&D (87 percent), but Marketing representatives are on 69 percent of teams. Also present are Manufacturing (54 percent of teams), Corporate Management (44 percent), Purchasing (39 percent) and Finance (28 percent).
Centralized decision-making is way up, indicating top brass is holding the reins in a tight economy. However, that was contradicted somewhat when we asked respondents who sets R&D goals in their company — it's R&D, of course. Looking at last year's numbers, nothing has changed at all. CEO/CFO/President, General Management and R&D had nearly identical "very involved" and "somewhat involved" scores compared to 2010.
There was a slight shift compared to last year vis the involvement of the Marketing & Sales team in goal setting: They lost clout in that the percentage "not involved" nearly tripled, from 2.7 percent to 7.5 percent. Those percentage points (and more) went over to the steel-toed boots guys and gals, who saw a rise of "very involved" go from 23 to more than 29 percent.
How do our processors' R&D squads identify new product ideas after goals have been set? 85 percent rely on basic internal research. This is up slightly from last year's 81 percent. And reliance on focus groups also is up several percentage points, from 2010's 44 percent to nearly 48 percent. Suppliers are tendering about the same input as they did last year (up a single percentage point, from 42 to 43). But external product development companies are pitching in a bit less, down to just over 15 percent compared to more than 17 percent of processors using them last year.
So while the economy has left its mark in the form of an adherence to the status quo for many issues, there are positive signs. As they look toward deploying their R&D teams, manufacturers may recognize the field of "healthy" and better for you" formulations is becoming the rule rather than the exception. That opens up numerous R&D prospects. In other words, this is the time for R&D to shine.
Methodology
In addition to links to the survey posted on our website and positioned in the magazine, we sent links to the survey out to all Food Processing readers bearing administrative and R&D titles. This year we received nearly 400 responses. As with all Food Processing surveys, personal information is kept strictly confidential and is used only for research purposes. Thanks to all for participating, and we hope to hear from you for next year's survey.
