Build, not buy
The alternative to M.&A. is R.&D. But for many food and beverage companies recently, innovation has become the “growth path less traveled,” Rabobank said.
This option may be more disruptive to companies, which are increasingly pursuing cost-cutting measures to improve margins and investing less in research and development.
But line extensions and product reformulations just won’t cut it anymore, Rabobank said.
“Companies who pride themselves on their R.&D. capabilities need to focus on bolder and more disruptive innovations, addressing the new and/or unmet needs of consumers,” Mr. Fereday wrote.
Developing the right product for the right price and selling it in the right place may be easier said than done, but new and established players have shown success by innovating in certain categories, such as snack bars, functional waters, Greek yogurt, chilled ready meals, coffee pods and ready-to-eat popcorn.
“Mondel?z’s belVita breakfast biscuits is a great example of an established player developing a new brand (originally for the European market) and bringing it over to the U.S. in 2012,” Mr. Fereday said. “With some creative marketing around ‘sustained energy’ and taking a leaf out of William Wrigley, Jr.’s playbook by handing out millions of free samples, the company has helped redefine what a cookie could be… and in the process, helped create a $300 million new market in less than three years.”
Rabobank proposed several strategies for improving chances of success through innovation. First, companies should capitalize on the trends showing staying power, such as plant-based protein, less processed, organic and fresh foods, and convenient and portable snacks. Considering the implications of the new Dietary Guidelines is another opportunity.
“Companies can do a much better job of exploiting (trends) and take a view as to how they are likely to evolve,” Mr. Fereday said. “For example, will gluten-free continue to evolve into a general appreciation for ancient grains? Will Australian-style yogurt eclipse Greek yogurt? Will the decline in aspartame-sweetened sodas push more consumers to experiment with naturally sweetened, reduced calorie sodas?”
Traditional brands are taking a backseat to premium products, which are perceived as higher in quality than their marked-down shelf mates.
“Developing new premium brands may seem too ‘nichey’ for those companies used to the economies of scale of producing to the mass market,” Mr. Fereday said. “Yet the world of ‘one-size-fits- all’ is over.”
Still, many iconic brands remain relevant and resilient in the wake of changing consumer tastes. For Lunchables, Oreos, Domino’s Pizza and other big brands in advantaged categories, the old adage applies — if it ain’t broke, don’t fix it.
Noted Mr. Fereday: “In our view, their key to success lies in not trying to over-stretch the brand into too many categories and into something that it is not.”
