Wednesday, February 21, 2024

Disruptive food trend has already peaked – report

Avatar photo
Rabobank report says innovations will slow right down after past decade of intense activity.
Reading Time: 3 minutes

Those expecting disruption in the food innovation space in the near term should instead brace themselves for boredom.

The next few years will see far more incremental innovations and fewer disruptions when it comes to food trends, according to a report from Rabobank.

In the report, Disruptive Food Products Prove To be More Hype than Bite, Rabobank says the consumer food industry has witnessed an explosion of disruptive innovation for food products over the past decade, but that this has reached its peak.

Examples of such food include  plant-based meats, insect protein bars, synthetic fat replacers and precision fermented milk proteins.

“Weaker demand for disruptive innovations, economic uncertainty, and the higher interest rate environment have exacted their toll on many disruptive products coming to market,” Rabobank senior consumer food analyst Thomas Bailey says.

“The same group of investors that drove the 288% increase in deals from 2010 to 2022 appears to have put the brakes on deals so far in 2023.

“Moving forward, disruptive innovations will likely face more rigorous evaluation, resulting in fewer but potentially more successful disruptive products that have endured more intensive vetting.”

The report says the drivers this explosion of investments were many, but arguably the most significant was the lower interest rate environment, which at its lowest point drove the peak of deal activity in 2021.

Factors slowing the rate of innovation now are the high interest rate environment, volatile commodity prices, the geopolitical environment and the labour market. 

Inflation has also pushed consumers to make purchasing decisions based on affordability over other attributes.

“Investors may have overestimated consumers’ willingness to dramatically change their diets. The relationship people have with food is much more intimate and difficult to disrupt than their relationship with other sectors,” it says.

Many of these disruptive foods also do not taste great, are ultra processed, use an unfamiliar manufacturing process, or have ingredients that consumers are uncertain about.

“New products that do not address these issues are likely to continue to face challenges gaining repeat purchases by consumers,” the report says.

It is not all bad news for plant-based products, with plant-based milks faring much better. 

However, although popular brand Oatly has received great reviews and adoration from consumers, in terms of sales and penetration in the milk category, it has at best performed on par when compared to a traditional milk product such as those produced by United States-owned Fairlife.

Oatly has seen strong revenue growth, but it is still below 1% of the milk category, tracking slightly below Fairlife’s first five years, demonstrating that incremental can be a winning strategy.

Bailey says incremental innovation – creating new value through minor product or service adjustments – is considered safer.

“In food, incremental innovation looks like line extensions, packaging changes, new flavours, and functionality twists.

“The main benefit of incremental innovation is that it offers more immediate benefits: supply chain simplicity, sustainability, cost reduction, and generally keeping customers happy and interested. Furthermore, it is better suited to keeping prices low for consumers in an inflationary environment like the one we have today.”

The report says it is safe to assume that those who continue to invest in disruptive innovations will need to exercise even more prudence when it comes to food products.

“They will need to take more steps to ensure product alignment with consumers in terms of taste, health, and convenience. Investors who choose to continue to seek out disruptive innovations will be a good source of insight for large food companies that are currently shifting to incremental innovation but need to keep an eye on the longer-term horizon”,  Bailey says.

“While disruptive innovations underperformed against our expectations this time around, the quality of the disruptive food products will be higher in the future and may catch us off guard.”

Total
0
Shares
People are also reading