Nestlé’s budget-friendly innovation strategy: ‘We are faster now than many of the startups”

By Elizabeth Crawford contact

- Last updated on GMT

Source: Getty/	Monty Rakusen
Source: Getty/ Monty Rakusen

Related tags: Nestlé, Innovation, New product development

No longer a lumbering giant when it comes to R&D, Nestlé significantly increased its number of new product launches and number of patents in priority areas by simplifying its innovation process, fostering an entrepreneurial culture and collaborating with external startups and retailers.

And it did all this while keeping its R&D budget flat despite the growth of the company, Stefan Palzer, chief technology officer at Nestlé SA, told investors and financial analysts during the company’s recent investor day.

“When it comes to speed to market, we were able to shorten the time to market by 60% since 2016. We moved from an average project duration of 33 months to 12 months,”​ said Palzer, adding that within food and beverage, projects can take as little as six to nine months to move from ideation to market.

“We are faster now here than many of the startups which are out there."

Nestlé launched and tested 12% more innovations in 2021 vs 2020, most of which offered meaningful differentiation in the market place, he claimed.

“We still have 30% of our growth coming from products we launched in the last three years, but the percentage of innovation in that 30% has increased to about 25%”​ between 2019 and 2021 with the remaining portion focused on renovation, he said.

As another indicator of the significance of these innovations and proof they were more than simple line extension, Palzer said Nestlé increased its number of new patents in priority areas by 90% between 2019 and 2021.

Streamlining innovation processes and crowdsourcing ideas fueled growth

Nestlé was able to increase and speed its innovation pipeline in part by simplifying its existing process – reducing the necessary approval gates from six to three – and building 53 new pilot lines across the company to speed production and go to market earlier, he revealed.

The company also created 14 R&D accelerators, which operated on a tight timeline of only six months from idea to shop. These ideas were then tested in real-life conditions either online or in stores through the 30 partnerships Nestlé cultivated with retailers.

Nestlé’s fostered differentiation within innovation by crowdsourcing product ideas internally, externally and digitally.

“We established an internal Shark Tank for our employees,”​ who pitch their ideas and through a voting and evaluation process the best options are funded, Palzer said. This led to innovations such as a food-based teething tool, pitched by an employee in the pet food business whose child was teething but who she didn’t want chewing on plastic. Other winners include an adult chocolate milk protein beverage and a line of frozen bowls.

“Furthermore, we established 60 new collaborations with startups”​ that combined their creativity with Nestlé’s ability to scale, Palzer added.

Finally, Palzer said, Nestlé invested in AI-based concept generation.

“We have all those social media insights on social media activities in the world. And to leverage that or to create very innovative concepts, we established an artificial intelligence concept engine, which is transforming these insights into concept proposals, which are then evaluated by our employees, by our staff. The one or the other, we do prototyping and then we test it with consumers,”​ he explained.

Other artificial intelligence and data processing tools developed by Nestlé focused on mining clinical data for new discoveries, recipe development, targeted plant-breeding, real time surveillance of raw material quality and preventive maintenance among others, Palzer said.

Increasing innovation without increasing the R&D budget

Each of these steps took money, but to keep the R&D budget’s flat, Nestlé streamlined its R&D footprint by closing a third of its R&D sites and consolidating research.

With additional funds freed from these closures, Nestlé opened new research institutes focused on packaging sciences, agriculture sciences, dairy research farms and pilot coffee farms. It also opened innovation centers in China and Latin America and 14 R&D accelerators across nine markets.

Focus on high-growth categories increase innovation efficiencies

Nestlé also made the most of its R&D investments by concentrating on high growth categories, including food safety & quality, taste & aroma, nutrition & health, affordability, sustainability, alternative proteins, coffee & systems, early-life & medical nutrition and science-based pet nutrition.

Within these areas, Nestlé developed breakthrough technologies, including one for sugar reduction that relies on a “fermentation transformation of intrinsic sugars found in our raw materials, for instance, lactose in milk, maltose in malt, fructose in … fruit juice,”​ and transforming them into prebiotic fibers, Palzer said.

The result was technology that could cut sugar up to 50% and calories up to 25% with little loss in sweetness and cleaner labels without additives all at little to no additional costs.

“We are already deploying this technology at large scale. Until the mid of next year, we will have 200,000 tonnes of product produced with the new technology,”​ Palzer said.

You always see now this discussion in the public that plant-based is slowing down. Not for us

Beyond sugar reduction, Nestlé focused its innovation efforts on bringing more than 100 plant-based innovations to market in two years across brands, formats and geographies.

“Contrary to many companies out there, we do not restrict ourselves to only meat and dairy or fish alternatives,”​ said Palzer, noting innovations in ambient plant-based products, an egg replacement, a vegan KitKat and plant-based creamers.

“You always see now this discussion in the public that plant-based is slowing down. Not for us. For us, it is still a very successful journey, and we are leveraging those developments, our various expertises along the value chain... to get to the best product by the end,”​ Palzer said.

Beyond plant-based, Nestlé also is investing in animal-free dairy, which it shop tested in the US in the fourth quarter of 2022, and cultured meat through a partnership with Believer Meats, which it plans to shop test in 2023.

Partnerships are essential for ongoing growth

Looking forward, Palzer said that Nestlé’s innovation journey is just getting started and that it plans to “accelerate translation of fundamental science into discoveries, into innovations, which we will leverage across multiple categories and brands.”

But to pull this off, he added, the company will continue to cultivate partnerships with retailers that can help test highly differentiated product concepts, as well as invest in technology and agriculture practices to improve sustainability of products 

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