Food & Drink

The key for growth in 2024 is innovation. Will more CPG companies embrace it?

Editor’s note: This story is part of a series on trends impacting the food and beverage industry in 2024.

In 2024, many large food and beverage manufacturers will need to double down on an often-overlooked part of their business: innovation.

This year is forecast to be challenging as inflation, consumer fatigue over price increases and other factors weigh on companies, placing pressure on producers to upend their usual way of thinking. While breaking with tradition will be difficult for some, it also could be key to their success this year, experts say. 

Analysts who follow the sector told Food Dive that under the current environment, innovation is more important than ever for companies to attract and retain consumers who are curtailing their spending, pushing for products that better meet their needs and navigating through a seemingly endless array of choices in the marketplace. 

For many storied companies, however, paying more attention to innovation and investing extra money to bulk up that side of their business means upending an inherently conservative culture that has been largely risk-averse for much of its history. 

Mikael Bengtsson, industry and solution strategy director of food and beverage at Infor, said for many food companies that have been around for more than a century, doing things the way they’ve always done it “won’t cut it anymore.” 

“If they don’t, I think they are doomed. They need to embrace it. Otherwise, they’re not competitive,” said Bengtsson, whose firm advises companies in the food and beverage space. “It gets more expensive. It’s less efficient and they can’t be profitable anymore. The world is changing and if they don’t change with it, I think it’s hard.”

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Christopher Doering/Food Dive

 

Pressure from private label

Despite the growing importance of innovation, food and beverage companies are facing obstacles in the market that make it less attractive for them to green light potentially risky bets that will take years to pay off — if they even prove to be successful in the first place — while generating minimal sales in the near term.

Not only are executives under pressure on Wall Street to increase revenue, but there is mounting pressure to maintain and expand margins, a difficult feat with businesses today facing higher costs for ingredients, shipping and labor. Companies of all sizes also are dealing with higher borrowing costs with interest rates hovering at their highest level in years, creating a disincentive to tap into capital to fund a far-from-certain endeavor. 

“They’re much more risk-averse now because they have to,” said Brian Choi, CEO of The Food Institute, a food industry media and market research company. “Companies are judged by [investors and their boards on] how they are doing compared to their competitors. They are not judged based on innovation.”

Instead, executives are more likely to favor maintaining sales for popular brands that are responsible for the lion’s share of their company’s volumes and sales.  

Shelving some innovation now could pay off now, but analysts said it risks slowing medium to long-term growth by creating a stale portfolio and reducing a company’s competitiveness.


“I honestly believe in the U.S., a lot of CPG companies are just not very good at innovation. They’re not very good at moving their products forward. They’re lazy.”

Neil Saunders

Managing director, Global Data


The inability of some businesses to innovate quickly enough is already causing some to fall behind, with a handful turning to M&A as a way to fill gaps within their portfolios.

Last year, jam and peanut giant J.M. Smucker dolled out nearly $6 billion to buy Hostess Brands to deepen its presence in indulgence categories and consumer occasions focused on convenience. And Campbell Soup, which already owns Prego, announced plans in August to buy Sovos Brands, the owner of premium pasta sauce brand Rao’s, for $2.7 billion. The deal is expected to close later this year.

“I honestly believe in the U.S., a lot of CPG companies are just not very good at innovation. They’re not very good at moving their products forward,” Neil Saunders, managing director with Global Data. “They’re lazy.”

That could soon change.

Retailers such as Target, Safeway, Kroger and even Amazon are getting savvier with their private label offerings that often are as good or better than the branded items, and available for a fraction of the price. 


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