What does a recession mean for new product development (NPD)? Logic might dictate that if you're sitting on a new organic smoothie laced with omega-3 and sprinkled with goji berries, now might not be the perfect time to present it to a buyer at Asda. But logic also suggests that the future of the entire functional foods market is not seriously in jeopardy (as the UK's Financial Times recently declared) just because Danone couldn't persuade punters to buy a yoghurt promising to "nourish your skin from the inside"
After all, some things don't change, even if we are all counting our pennies. Most of us still can't cook, we're still getting fatter and we're still suffering from the same lifestyle-related diseases.
Likewise, political pressure to reduce salt, fat and sugar will not go away just because we're strapped for cash.
In other words, we shouldn't throw out the baby with the bathwater just yet, says Jeffrey Hyman, boss of the Food and Drink Innovation Network. "In this environment, many people tend to go for the safest options on the NPD front, but I actually think we've still got to keep things going."
Says Becky Sparks at product development firm Sparkling Innovation: "Launch plans are being very carefully scrutinised, but there is also awareness that when we come out of this recession, we need to have something to offer."
In fact, now might actually be the perfect time to launch, says Ed Garner at market researcher TNS: "If you have a cracker of a new product, this could be a very good time to make some noise and get a good share of voice." Jonathan Banks at fellow researcher Nielsen adds: "I think it would be a mistake to take your foot off the gas; some great products have been launched in the middle of a recession."
That said, many say that blue-sky NPD is now very much on the backburner. As one supermarket source says: "The recession has had a massive impact on our development priorities. I have heard the phrase 'great product but not right to launch in times like these - let's bank the concept for better economic times' many times."
Paul Elliott, a chef who has worked with several supermarkets, says: "A lot of manufacturers have frozen or cut budgets. The money is not going into blue-sky stuff. People are resurrecting banked ideas or value engineering existing products."
David Jago at market researcher Mintel, agrees: "There is always the temptation in this climate to play it safe, so I'm not necessarily expecting to see fewer launches, just more me-too stuff."
While it's easy to panic when a recession bites, however, the mood has actually become marginally more optimistic in recent weeks, claims Hyman. "Last autumn, when it became clear we were entering a recession, everyone cut costs in preparation. But they were being forced to do this anyway because of dramatic rises in raw materials prices and the drop in [the value of] sterling, which were putting massive pressure on margins. But the mood has actually improved very slightly since then; the Christmas trading figures from all the major UK supermarkets were also encouraging, so I think there is room now for some creativity and optimism."
Chris Lightfoot, who runs a product development consultancy, saw a 25% drop in turnover last year, but says things have picked up a bit this year: "A fear of the unknown and constant media attention to the recession/credit crunch/job losses in manufacturing started a chain reaction in what seemed like businesses battening down the hatches for the approaching storm. I could feel the innovation development funnel starting to dry up."
Companies have to be seen to respond, but they haven't always got it right, observes Sparks: "I think there has been a lot of knee-jerk stuff that's not really offering consumers anything substantially better. I think if you give it until June-July-time, after the panic has subsided, people will take a broader view. I don't think more discount lines are the answer. In terms of blue-sky stuff, people are looking to the brands to invest instead of own-label, where development teams are being stretched to the limit. It's a highly pressurised environment."
It can also be rather dispiriting, says product development consultant Angela Mitton: "What's really depressing is when the final product bears no resemblance to the original because you've had to make so many compromises."
So how is consumer behaviour actually changing, and how are development priorities being adapted?
Our supermarket source says: "We have seen a reduction in premium range NPD and increased activity on lines to give great value. We are undertaking no developments at all on organic products."
While Nielsen figures reveal sales of UK supermarket own-label value ranges were up a whopping 33% in the 12 weeks to December 29, 2008, value lines only account for about 3% of the market, so we're not talking about a seismic shift in shopping habits. Moreover, there is unlikely to be a massive expansion of value-label stock keeping units, predicts Sparks. "You get high volumes, but the margins aren't great, so I don't see the overall numbers of products rising dramatically."
Charles Banks, who provides consultancy services to food manufacturers and retailers on trends, says it is "hard to predict which changes in shopper behaviour are cyclical and which are structural". However, he adds: "I think many shoppers have re-evaluated the status quo, tried new things - like going into a discounter or buying frozen food, and discovered what they have been missing."
While UK sales of organics have plummeted in recent weeks, supermarket premium own-label ranges only dipped 1% in the 12 weeks to December 29, 2008, which is hardly proof that shoppers have lost all interest in quality and are now focusing exclusively on price, notes Banks.
Similarly, there is little hard evidence to support the Financial Time's predictions of approaching Armageddon for all functional foods, says Kavan Ranasinghe at functional/healthy ingredients distributor DKSH: "We were very worried a few months ago, but I can honestly say we've had a fantastic start to the year. Things like fat replacement, fibre addition, beta-glucans and satiety are as popular as ever."
Sarah Britton, who works in Reading Scientific Services' product innovation and ingredients division, says: "We've not really seen a move away from functional ingredients, and people still want five-a-day, wholegrain and so on, we've just seen a move away from organic and premium."
International Food Network group leader Nick Henson says: "I do sense reluctance about functional ingredients, but that has more to do with the uncertainty surrounding the Nutrition and Health Claims Regulation than the economic climate. We don't know which claims will be approved and launching anything in those circumstances is a big risk."
Mike Croghan at clean-label ingredients specialist National Starch adds: "Back in October/November, I was being ultra-cautious, but the areas of the market we're in have held up reasonably well."
In times like this, he says, "you see an inevitable shift from 'real' or 'new NPD' towards productivity. But this isn't about beating up your raw materials suppliers; it's about more fundamental reformulation, and manufacturers need to engage in real open innovation with suppliers."
Indeed, ingredients suppliers such as DSM Food Specialties that can help manufacturers save money through replacing more expensive raw materials, increasing yields and making production processes more efficient come into their own at a time like this, agrees business unit director, ingredient development, Rob Beudeker. "We have experienced particular demand for these cost reductions from our baking and brewing customers."
But this doesn't mean that health has gone out of the window, stresses Kristen Borsari, senior manager, global marketing, Ocean Spray Ingredients Technology Group: "We have just as many projects in the pipeline although their scope and focus is changing. There is less focus on luxury and premium and more on making healthy, better for you products affordable."
Retailers' reactions
While all retailers are focusing on value, not all of them have reacted to the recession in the same way, with Tesco introducing a new discount range, Sainsbury urging shoppers to switch from brands to own-label products to save cash and Asda slashing its overall range. Tesco has also been very vocal about what he expects from suppliers now commodity prices have eased a bit: "We are going to great lengths to talk to our suppliers about the new pressures consumers are under."
Retailers' gross margin aspirations also remain "on the increase at a time when many manufacturers are in a loss making situation", reveals one industry source. "The only way to ensure that these demands are met is to value engineer with cheaper sources of ingredients."
One chief executive who attended Food Manufacture's recent business leaders' round table debate says: "We thought they were pretty hard to deal with before, but now they have become almost impossible. There is a tremendous lack of integrity."
As for Tesco's new discount range, which has just been expanded by a third, opinions vary, with critics arguing that Tesco is confusing shoppers and adding complexity to its business, and admirers claiming it had outmanoeuvred the hard discounters.
Sainsbury's 'switch and save' campaign has also attracted controversy. One industry source says: "If I were Warburtons, or any firm that has spent a lot of money investing in my brand and driving the category, I'd be pretty pissed off right now."