Smaller firms top UK food innovation charts

By Jess Halliday

- Last updated on GMT

Related tags: New products, Innovation

While innovation is fundamental to growth for food and beverage
manufacturers, smaller companies are maintaining more momentum in
product launches than their bigger counterparts, says OC&C
Strategy Consultants.

The consultancy conducted a study of the most innovative firms in the UK sector, and found that the ten most innovative firms had average organic growth in excess of 5.8 percent between 2004 and 2006. The remainder, on the other hand, had average organic growth rate of just 1.4 per cent over the same period. While this certainly underscores the sense in investing in innovation to meet consumers' hunger for new products, four of the top five niftiest innovators had revenue from branded goods of less than £500m. The average rank on the innovation scale for companies with branded revenue over £500m was 15.4. Category focus yields results ​Will Hayllar, one of the authors of the report, told that the winning combination for innovation seems to be a combination of size and category focus. Manufacturers that focus on a smaller number of sub categories - such as cereals and bars, operate in a more tightly defined area of the market. "They understand consumers and what they want, so their launches are more targeted and therefore have a better success rate,"​ said Hayllar. By contrast, companies that are active in many sectors seem to have more room for manoeuvre on the surface, but this could mean they are less focused on what they can achieve in each area. Weetabix on top ​The most innovative food and beverage manufacturer in the UK between 2004 and 2006 according to OC&C was private equity-owned Weetabix, which had a estimated branded revenue of £255m. The cereal-maker was described as having a "strong all round innovation performance, with good rate of new products in core cereals and extension into cereal bars"​. It was also said to have success in making them "stick".​ It has reinforced its strength in the cereals and cereal bar category by launching new products that leverage its well-known Weetabix and Alpen brands. Around 45 per cent of new stock keeping units (SKUs) launched in the last two years are said to be available in all four major grocery chains. While it has effected no relaunches, 41 per cent of innovations were around new products, 41 per cent around new flavours, and 18 per cent around new packaging. OC&C also noted that Weetabix's status as a private equity firm does not mark it out as unusual in the innovation charts. Other high-innovating PE firms were Young's Bluecrest and Bird's Eye, in 9th​ and 12th​ place respectively. "PE ownership does not stifle innovation,"​ said the consultancy. Rather, they are "particularly strong in the level of new product innovations they have introduced". Cereals and bars​ In second place in the OC&C rankings was PepsiCo (estimated branded revenue £429m), Cadbury Schweppes (£1086m), General Mills (£179m), and Muller (£444m). Although Hayllar agreed that cereal makers, overall, showed a good performance in cereals, he does not believe this is because this category is especially ripe for innovation. After all, breakfast cereals are a mature market. While the explanation could, in part, be development of on-the-go cereal bars that are tapping into the snack segment, Hayllar said it could also be down to the strength of the branded businesses in this category. The OC&C methodology ​ The consultancy developed its innovation index by taking the top 25 branded food and drink producers by revenue (according to the Grover 150 index), and adjusting their revenues to exclude estimated private label sales. They then looked at the level of innovation by new product introductions over the last two years (according to Datamonitor's Productscan database), classified them by new product or new SKUs and ranked them according to the ratio of new products and SKU to £m revenue. The new products and SKUs were checked for 'stickiness' - or how available they were in the four major grocery chains - and the percentage of a producers retail presence made up by products and SKUs introduced in the last two years. The consultants also collated a list of companies' acquisitions and disposals, and determined the impact on UK revenues, so as to estimate organic growth rate.

Related topics: Market Trends

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