The following story contains just five of the 14 infographics resulting from our R&D Survey. For a report with all 14 survey questions in graphic form, click here.
Product development teams navigated the pandemic, the post-pandemic supply chain crisis, then a year of soaring ingredient prices. Now they appear ready to swing for the fences, making “really new” product development their top priority for this year, according to results from our 53rd Annual R&D Survey.
It appears they’ll have the money to do so. Product development department budgets are up for 32% of our respondents, the highest number in at least 10 years. A full year after the big cost increases for ingredients and all other things, ingredient prices – the big takeaway from last year’s R&D Survey -- appear to have stabilized. But the time it takes to get a concept on the shelf seems to have lengthened a little.
Those are some of the topline observations from the survey. Among the new and timely questions we added this year:
- 58% are worried about reformulating without some of the ingredients that are or may be banned by some states (such as red dye No. 3, titanium dioxide, brominated vegetable oil).
- “Only” 23% are using artificial intelligence in their processes. That’s still remarkable progress.
- 62% think front-of-pack labeling proposals will affect their priorities this year.
- 64% do not think the GLP-1 weight-loss drugs (Wegovy, Saxendra) will have any impact on their companies’ sales.
The online survey was fielded in March and April. We had 131 usable responses.
Every year, the first question we ask is: Pick one of five general themes for your company's product development efforts this year. "Really new" product development was No. 1; its 48% response rating was the highest in at least 10 years. It’s been the top answer for longer than we can remember, but garnered a more typical 34% last year and 33% in 2022.
Existing product improvement (22%) and “cleaning up” current products (12%) each picked up about 3 percentage points; cost control (-7 points to 9.2%) and product line extensions (-11 points to 6.1%) were the big losers on that question.
Those potential bans of red dye No. 3 and titanium dioxide must have at least some product developers worried. Asked “What ingredients will you be working on most this year?” Replacing synthetic colors vaulted into first with 32% of responses, more than double what it got last year. Removing sugars has been the top answer since at least 2020 but this year it dropped to 26%. Adding fruits & vegetables, which has never placed this high before, came in third with 23%, as did replacing refined grains with whole grains (also never this highly ranked).
This year’s unique queries
As mentioned earlier, we added four new questions this year, all relating to timely topics. Regarding any potential state or federal bans of ingredients, three mentioned red dye No. 3 as an additive they were working to remove from their formulations. One respondent each named titanium dioxide, brominated vegetable oil and propylparaben.
Only one respondent elaborated on the AI question: “AI inclusion in our software-based work activities.”
For just the second year, we asked a supply chain-related question: Are you having trouble sourcing ingredients? Only 27% of product developers are. Two mentioned cocoa as being in short supply. One said his company is introducing carob as a replacement for cocoa, for both supply and pricing reasons.
One respondent complained of “a lot of out-of-stocks.” Some other write-in answers on difficult-to-find ingredients:
- Hydrogenated oils
- Soy lecithin
- Natural colors & natural flavors
- Glucose syrup
- Milk powder
- Alternative flours
Ingredient costs, as mentioned earlier, are moderating but certainly not receding. More than half say prices are up 5-25%, and another 12% say they cost about the same. Interesting, however, is that 12% say they’re up more than 50% -- that’s double the response last year. No one said they went down.
One respondent blamed some of his increase on “tariff-affected products” — he could have been talking about pea proteins from China, which are likely to be hit by tariffs of 127-612%.
How to mitigate those price increases? In addition to one team substituting carob for chocolate, one respondent is trying upcycled ingredients. Another wrote, “We are replacing our existing ingredients with more healthy and cheaper ones” – that’s a good trick.
Several respondents mentioned SKU and product consolidations. Other answers to that cost-control question:
- “We have always focused on developing products with minimal ingredients.”
- [We are] “aiming for alternative ingredients [but] ensuring the same nutrient values with cost control.”
- “Tried to reduce the amount of R&D time.”
- “Moved to smaller packs from larger packs.”
One was stymied in his sugar reduction efforts by “cheap reb-M stevia, cheap monk fruit extract, cheap allulose, cheap erythritol.” We don’t think he appreciated the cost savings forced upon him by someone (purchasing?).
Two reacted negatively to the whole idea of cutting costs. “No,” one said firmly. “We ensure both adherence to our recipe compliance standards and a commitment to health-conscious choices.”
“Consumers are angry the prices are rising , and companies want least-cost formulations,” wrote another. “The quality of food in the stores is insulting.”
He went on: “We know from consumers directly they are angry, as across-the-board product quality, size of portion and flavor is hurting the industry. Shrinkflation [or] let’s make it cheaper. The big stores want higher margins. Consumers are defeated. Will the health and welfare of consumers be affected because many products just do not cut it when cheapening ingredients and portions?”
It’s a team sport
Keeping in mind we get responses from companies of all sizes, 84% said they have a formal product development team – that’s 12 points more than last year. Also higher was the representation of R&D on that team: 90% seems more logical than the tepid 84% and 82% answers from the two previous years. Although it placed second, the Manufacturing Dept.’s representation on the team continued to slide, with 41% saying plant operations people participated.
All the other titles took dives except Single Supplier – jumping from 2.0% last year to 12% this year. Taking the biggest hit was Marketing (29%), which has been in second place for at least 10 years. That’s the same score as Purchasing, which also took a double-digit hit. Management was reduced, too, by 17 points.
For those who have teams, 31% said the group meets weekly or more often; 21% said they talk a couple times a month. With Covid now a distant memory, few of those meetings are virtual anymore.
Most product ideas still come from general market research (59%) although that and second-place internal research both saw dips this year. Research provided by suppliers came in third with 28%. Focus groups took the biggest hit, cut in half to 19%.
Above is just five of the 14 infographics resulting from the survey questions. We have a lovely PDF with all 14 survey questions in graphic form; to get it, click here.
