R&D / Manufacturing Trends

The Inside Scoop on Outsourcing Product Development

Outsourcing some product development and R&D projects offers added flexibility, saves time and money and frees processors to work on other important tasks.

By Lauren R. Hartman, Product Development Editor

Visit any food show, and you'll see entrepreneurs trying to get their items to the retail level and growing companies struggling to fulfill increasing demand with limited production capacity. Even at larger, established food companies, there's so much cost cutting, deadline tightening and operational streamlining that developing products in-house can be difficult.

Certainly, processors continue to design their own products and formulations in-house, corralling marketing, distribution and financing within their collective walls, and supporting the resulting products on their own. But contract R&D specialists usually can complete a project faster than internal teams because they apply a heightened focus and dedicated resources to the project. This can cut costs in the short term, and boost profits in the long run if the product gets to market faster.

Outsourcing is a fairly standard tactical approach in the food business, says Dave Behringer, chief technology officer at 915 Labs LLC (www.915labs.com), Centennial, Colo. (and a professional chef). "It was never meant to replace internal resources, but allows an organization to use skilled staff only when needed. Once they have an established an external ecosystem, it's easy and cost-effective to outsource activities as needed on a project by project basis."

Leave the R&D to us

"The pace of new product developments has become so fast, it's very difficult for developers to create everything [in-house]," says Barb Stuckey, president and CIO of Mattson (www.mattsonco.com), San Francisco. The food and beverage-centric product design and development firm creates products, strategies and branding programs, using culinary and technical expertise and trend and consumer insight. Some of its success stories include Soylent 2.0 drink meal replacement and Ripple dairy-free milk.

"Outsourcing has many other benefits," she explains. "Clients hire us because they want to tap into our deep experience across categories and technologies. Companies that do a good job with innovation and product development have more good ideas than they have resources."

The cost savings associated with outsourcing can be significant, depending on the circumstances. While the food company works on sales and marketing, initializing formulations, producing prototypes and executing lab and pilot plant experiments can go to the R&D provider, which commits limited capital into analysis, plant trials, ingredient supply and equipment. Formulation secrets stay secure as the product gets into the marketplace, and the food company gains a new perspective and a bit of expertise with some outside product development help.

"As with all innovation and new product launches, there's no guarantee of success," Stuckey points out. "As such, many companies want to wait and see if the product [we help them with] succeeds in the marketplace. If it does, they can then build out internal R&D resources to support the business. If not, they don't have to lay off an entire team."

While outsourcing requires considerable coordination, R&D departments can attain skills beyond their in-house capabilities or harness local knowledge in a market they're trying to cultivate or enter, Stuckey explains. "There's often a short ramp-up period for us to fully understand the consumer dynamics, inner workings, brand tenets, manufacturing assets and company culture for a specific project. However, we pride ourselves on being quick studies, since innovation and new product development is all we do."

Startups often use external food product R&D. Frequently without the resources and other assets for their own production, startups look to contract manufacturers and packagers for operational efficiency, a shorter time to market and improved cost control.

Mattson's client size and type vary as much as the applications. Stuckey says startup/entrepreneurial clients get a partner with the depth of expertise of a large firm. "Conversely, large clients get a partner with the nimbleness and entrepreneurial spirit of a small company," she says. Large companies often utilize Mattson because they no longer have the tolerance or patience to start a new brand and product line internally.

"It can take years to turn a profit," she says. "It's risky to start a new business, and takes long-term patience. Large companies often are risk-averse because investing sizable funds in a new business can take years to pay off." The decision makers fear the new platforms will cost them if the platforms aren't an immediate success, she explains. This is especially true of public companies challenged to deliver higher and higher quarterly profits in the short term.

Stuckey says a typical project can take anywhere from three to 12 months in development, testing, naming/branding and design, as well as applying the design to the packaging and scaling up for commercialization.

Tech, bandwidth assistance

More on the technology side, 915 Labs LLC offers an FDA-approved process called microwave-assisted thermal sterilization (MATS), which it exclusively licenses from Washington State University. The process allows "less processed, healthier, shelf-stable" foods (see Food Processing's September article on emerging technologies).

Food clients can familiarize themselves with and assess, vet and validate the technology through the company's boot camp courses. Behringer says MATS (and its companion technology, microwave-assisted pasteurization or MAPs) can help food purveyors develop ready-to-eat, shelf-stable dishes with heat-sensitive ingredients as well as batch ingredients sold or served by grocery and restaurants, foodservice and school meal programs. In addition to providing pilot scale and commercial production equipment, 915 Labs offers turnkey product development and a suite of services to help customers accelerate the technology's application, including product development and testing, FDA thermal process validation and optimized packaging. It has three test kitchens in the U.S. to fast-track the concepts and plans additional locations in the U.S. and internationally.

Not all customers have the internal resources, process capabilities, food formulation expertise or thermal process capabilities to utilize MATS, so 915 Labs provides as much assistance as needed. "Over the last five years, consumer packaged goods companies have gone through a downsizing, particularly in R&D, which means smaller organizations focus primarily on the mission-critical, near-to-mid-term opportunities," Behringer says. It's difficult [for them] to move longer-term, adjacent opportunities forward with their current staffing and focus. Filling in skill gaps can be a driver for a new opportunity, especially if it's significantly outside a company's core product area."

Creative brand building

LiDestri Food and Drink (www.lidestrifoodanddrink.com) is a Rochester, N.Y., contract manufacturer/copacker/formulator of food, beverages and spirits, with core competencies in aseptics, hot and cold filling, formulation creation and retorting processes. Lately, LiDestri has taken on increasingly collaborative roles with clients when reliable ingredient quality or quantity is in question.

It has five production sites and an innovation center, where retail and national brand partners come to create recipes with certified tasters, refine formulas and test new products in a pilot lab. The company will vertically integrate certain sources of supply when it runs into roadblocks seeking products or ingredients that may be distinctive or unusual. It has grown basil onsite and partnered to supply craft whiskey for another application.

"We explore inventive ways to shorten or vertically integrate our supply chain," explains co-president Stefani LiDestri, who oversees R&D.

To distinguish Newman's Own's new Common Good organic pasta sauce in the super-premium market, LiDestri found a California tomato grower that could plant and harvest 1.5 million pounds of a super-flavorful tomato variety that beat Italy's famed San Marzanos in taste tests. Newman's Own CEO Mike McGrath worked with LiDestri's innovation center to develop formulations. The concept's timeframe required teams of trucks to travel 24 hours a day between the tomato fields and the cooking vats to hit the target delivery date. A year later, pallet loads of Common Good jars went national at Kroger stores.

"In terms of innovation, they're all over it," McGrath says. "There’s no question about their ability to get product to market in fast order. They're trying to help me build my brand, the most important thing a copacker can do."

Peter Salmon, a certified food scientist and MBA who worked for both General Foods and General Mills, started International Food Network (IFN) in 1987 to provide product development services from concept to finished product. IFN is now a part of Covance Food Solutions (CFS, www.covance.com), Madison, Wis. IFN has helped some of the world's largest food companies launch key brands with prototypes, scale-up, process specifications, hazard and critical control points (HACCP) analysis, shelf-life testing and, if desired, overseeing final commercialization.

Most of the firm's consultative work is time-sensitive, developing better-for-you products addressing taste, stability or processing challenges, says Salmon, who is vice president of consulting services. A plan is customized to fit the requirements of each project. And a primary benefit is CFS's flexibility.

"Some companies are more risk-averse and spend more to validate the concept or product along the way," Salmon says. "Others have an appetite for market risk, want to move quickly through development and get into production. Underfunded startups must have a well-thought out business plan that captures all of their costs. And there are those that have done all of the concept development and validation; we help with the product and scale-up, and can jump in at any stage or go from start to finish."

Salmon says CFS keeps pace with the latest processing technology and formulation innovations as well as novel ingredients and packaging. "A lot of work involves a wellness benefit or unique consumer experience," he adds. "Clients can resource to meet their core requirements and then outsource around that," he says. "We make clients comfortable in knowing their proprietary information will be safe, and we do not retain ownership of any confidential information develop as part of the work they contract with us."