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2008 New Product Development Study

by Sarah Corp

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For many processors, the framework for product development efforts has shifted. This year research and development groups (R&D) will focus on “healthy” and “natural” products, and pay close attention to consumer demand for “organic” offerings. Fewer will use teams in tackling product planning and development, and less will follow a set plan in 2008. As budgets fluctuate and the pace of new product development quickens, 2008 promises to be an interesting year on many fronts.

Welcome to New Products Magazine’s 8th Annual New Product Development Study. Findings represent input from 318 processors personally involved in the product development process across six key food/beverage categories. NPM summarizes its take on new product planning and development, resources, market trends — including popular flavor predictions for 2008 — and pre/post-launch marketing plans for the coming year.

What’s hot, cool and cold

Consumer “convenience” is a price of entry requirement for food and beverage products hoping to compete in 2008 product space. However, R&D professionals are less certain with regard to consumer trends than in the past. At the start of 2007, a majority of processors reported organic, energy boosting, natural, ethnic and whole grain as key trends. Current attitudes toward consumer preferences are not as solid, with fewer than half of processors agreeing on the importance of addressing any specific product characteristic.

The trends receiving the highest sustained attention in 2008 include those in the “organic” and “natural” product spaces. New in 2008, processors are mindful that consumers, more than ever before, desire “healthy” products. Products that have healthy, natural and organic characteristics have the greatest potential for staying power in the coming year. In 2008, R&D will work to develop products that meet these requirements while also fulfilling increased consumer demand for “indulgent” products. Across nearly all categories, fruits will lead the ingredient charge in addressing these requirements on the flavor side.

General processor trends

R&D, upper management and sales/marketing continue to be largely responsible for guiding new product development.

Product development efforts for 2008 will be led by the beverage, bakery and prepared foods categories. Processors report a significant slow down in active product development efforts in the snack food/candy category compared to levels one year ago.

While most companies (86 percent) employ cross-functional teams in the product development process — particularly those with annual revenue figures above the $100 million mark — the team approach has diminished in popularity compared to 2007, when 92 percent approached product development as a collaborative effort. We speculate that this is the result of rising expectations (for greater cost efficiency in product development, higher volumes of new product launches, etc.) being tackled by a workforce constant in size. The data show that both internal and external manpower levels remain constant while the rate of new product introductions grows.

Following an established product development plan is also less likely in 2008 (58 percent versus 67 percent in 2007). While fewer are following a set recipe, processors continue to rely on suppliers at various points in the product development process. However, given greater familiarity with the consumer trends of yesterday — such as low fat and organic — less help is being sought on ideation and technical fronts.

Growing product success rates (76 percent versus 62 percent in 2006) are based on consumer-focused development efforts, say processors. Product success adds fuel to product development expectations. On average, half (51 percent) of the processors surveyed expect to increase the volume of new product launches in 2008. “With increasing competition we must address new consumer trends to keep our brand vital in the marketplace,” explains one processor. Another recognizes the “need to keep current with market demands and consumer interest” while others are focused on “expanding their consumer base.”

What about the product failures? Processors agree that sidestepping this outcome requires greater attention to consumer demand and marketing/education efforts. Reflections on unsuccessful efforts are laced with mentions of “not meeting consumer expectations” and “lack of up front consumer input.” This disconnection with consumer need is most often explained as a result of deficient market research efforts.

In the remaining months of 2008, watch for consumer marketing that focuses more on sampling, electronic media, retail promotions and point-of-purchase displays and less on coupons and direct mail. As the market is flooded with new products and consumers become more product/price demanding — fresh marketing and education approaches will be worth the investment.

Beverages

New beverage products will be most popular in 2008 because this category has its finger on the pulse of consumer wants and needs. Current efforts focus on developing and refining water/juice (55 percent) and sport/energy drinks (46 percent). The sustained shift from soft drinks to alternative beverages corresponds to consumer requirements for “healthy” options.

Marketing departments drive product development in this category, working closely with R&D and upper management to bring new products to market. Good news for some — the data show that purchasing will be less involved in product planning and development than in prior years.

On average, processors launched 12 new products to market in 2007, with a reported success rate of 50 percent. This represents a higher volume (up 25 percent versus 2006) of new product introductions — but a reduced success rate (down 8 percent versus 2007).

Beverage processors are introducing more products to market partly because they are pushing them through the development process at a faster rate than in the past, and are using more manpower to do so. On average, beverage processors assign nearly 6 percent of their workforce to new product development efforts — the most of all categories. The average time from product inception to launch is 10 months (with 30 percent reporting increased speed over last year) and costs approximately $273,000 — a solid increase over year-ago levels.

Because of the competitive and innovation-focused nature of this category, it’s not surprising that most have plans to launch more new products than in the prior year.

Some have opted to scrap formal product development plans. The result: beverage development in 2008 follows a plan significantly less often (60 versus 75 percent in 2007). Despite this shift, when asked to evaluate the importance of eight different phases in the product development process, outlook remains stable. The data show that processors continue to place the highest importance on concept/product testing, final product development and launch efforts.

Suppliers are expected to lend a hand in developing new beverages in 59 percent of cases (versus 70 in 2007), primarily by providing ingredients, samples and technical support. When it comes to outsourcing specific steps in the product development process, 40 percent of processors will do so (down from 47 percent in 2007).

Prepared foods

The prepared foods category remains a popular one in 2008, with one-quarter of processors in current development stages. Among those developing new products, more than three-quarters (76 percent) are working on prepared dinners/ meals/ entrées and one-third (35 percent) on side dishes, pizza, pasta or rice products. Less than one-quarter are focusing efforts on cereals/breakfast foods or desserts. The data show that R&D will focus on “natural” and “healthy” products that contain ethnic (most likely Asian) and pomegranate/other fruit flavors in 2008.

Prepared foods processors assign 3 percent of their workforce to new product development efforts. As is becoming increasingly common, marketing drives the process, with R&D playing a secondary yet critical role. Three of five processors in this category use a set plan for new product development.

At an average cost of $171,000 and average development time of eight months, R&D is maintaining or speeding up (as is the case in one-quarter of cases) the pace of development time. Production efficiencies and increased supplier reliance speak to the significantly lower average cost of product development in this category. Processors cite a growing customer base, proactive outlook on sales/market penetration and better product pipelines for increased product development efforts in 2008. For those who have higher R&D budgets for 2008 (58 percent), this feat will, presumably, be easier.

In 63 percent of cases, suppliers are relied upon in the development of new prepared food products. Forty-four percent of prepared foods processors outsource key product development support services. Primary among them are prototype development and market research or concept testing (among consumers). The most common market research efforts are consumer panels, home use tests, focus groups and in-store testing.

Marketing plans for 2008 indicate that we will see more sampling, retail promotions and POP displays in the prepared foods category. New in 2008, one-quarter (23 percent) will increase use of online/electronic media efforts in new product promotion.

Meat, poultry, seafood and deli

Among meat, poultry and seafood processors, current product development efforts rest on the “healthy” bandwagon. A majority of meat/seafood/poultry processors plan to bump up the volume of new product launches in 2008, with most chasing after flavors that will attract and retain loyal consumers. Like last year, current efforts are largely focused on incorporating ethnic flavors (Asian, Caribbean, Hispanic, etc.).

On average, meat processors launched 19 new products in 2007, with a reported success rate of 58 percent. This represents a significantly reduced volume of new product introductions versus 2006 levels, though success rates remained stable. Meat processors were cautious in 2007 — the proportion of products developed that were released to market dropped (33 percent versus 42 percent in 2006), leading to fewer launches overall.

With an eight-month average development cycle (a reduction for one-quarter of processors from last year) and costs averaging $78,000 (lowest among categories), a majority plan to increase the volume of new product launches in 2008.

More than half (56 percent) of meat processors adhere to an explicit product development plan. Production is viewed as the most important element to success; ideation and post-launch analysis are viewed as least important overall.

Half of meat processors (47 percent) outsource pieces of the product development process. Prototype development is the most common candidate, though concept/product testing and market research are also frequently conducted by outside parties. In this category, 69 percent rely on suppliers to provide ingredients, technical support, samples or formulation assistance.

Product sampling in the meat/seafood/poultry category will spike this year. As is usual with this group, retail promotions will also be a primary marketing tool.

Candy and Snack

The candy/snack category could be notably less popular in 2008, with less than one-fourth of processors in current development stages (versus 31 percent in 2007). Of these, a substantial majority (83 percent) are focusing on snacks, while less than one-fourth are concentrating efforts on either chocolate or candy products. Processors report that a focal point in 2008 R&D efforts is the inclusion of pomegranate and other fruit flavors. The data indicate that snack/candy processors are also focused on developing products that have “healthy” and “convenient” traits, while also containing “energy boosting” properties.

This group is fond of collaboration, with 91 percent of processors reporting a team approach to product development efforts. Upper management remains consistently involved, however R&D takes the clear lead. While marketing also plays a key role, this group is less involved (81 percent team participation versus 89 percent) than in the past.

The competitive nature of this category is driving nearly half (47 percent) to plan more new product launches in 2008. R&D budget increases accompany intentions to launch higher volumes of new products in this category.

Approximately 60 percent of snack and candy processors use a definitive product development plan and conduct post-launch assessments.

Looking ahead

New product development is a complex undertaking. As the pace of new product introductions escalates, processors have begun to move away from the team approach and are questioning the use of explicit product development plans... this in the face of greater uncertainty about consumer trends. Will compromises in planning and resources impact success rates in 2008? Will conventional wisdom be defied (e.g., that teams and plans and reflections on “learnings” lead to reduced cost, risk and speed-to-market)? Only time will tell.

More About the Survey

This article is a snapshot of a new comprehensive study examining the trends in product development across six key food and beverage categories. The conclusions are based on the opinions and behaviors of industry insiders who agreed to participate in the survey. This survey was conducted and findings were compiled by Clear Seas Research, Troy, Mich.

A total of 318 individuals actively involved in the product development process participated in the study, which was conducted in December of 2007. This in-depth research study provides up-to-date information on product development efforts and launch plans, resources, market trends, budget shifts and marketing plans for 2008.

The comprehensive report is available from Clear Seas Research. For information about ordering or to find out more about Clear Seas Research services, contact Sarah Corp at , phone 248/786-1625. Copies may also be ordered from the Clear Seas Research Web site at www.clearseasresearch.com and click your way to the "CLEAReport" page.

Sarah Corp